Hedging Strategies on Russian Stock Market

In this thesis research has been done to find the optimal hedge ratio to hedge stock risk at Russian stock market. Three portfolios are formed; one with stoks of “Norilsky Nikel”, second with stocks of “Gazprom” and the last one is formed with stocks of “Lukoil”. The data for each portfolio is extracted from Moscow Exchange. Each portfolio is tested by five different hedging strategies: zero hedging, regret theory, Froot theory, full hedging and OLS hedging. The hedging effectiveness is tested for different periods and is evaluated by looking at the return, standard deviation and Sharpe ratio of the portfolio. The Sharpe ratios of the portfolios are calculated for several time periods: between February 2006 and August 2008, between August 2008 and March 2014 and the last period between March 2014 and May 2017. The results show that for all portfolios the hedge ratio equals to zero gives the best Sharpe-ratio for the whole period at long horizons. The OLS hedging is the second best performing strategy. For short and specific time intervals, there are other strategies that perform better. Since in practice it seems almost impossible to predict the volume of the portfolio. The theory of Froot might be a useful method because this thesis shows that it performs best at long horizons based on historic data. the random walk model is still the best performing model at forecasting total returns.