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A1024
Title: Metallgesellschaft's hedging revisited: A superior predictive ability test analysis Authors:  Janette Goodridge - Utah State University (United States) [presenting]
Tyler Brough - Utah State University (United States)
Abstract: In the fall of 1993, German industrial conglomerate Metallgesellschaft AG experienced a derivatives related loss of over one billion dollars. This was one of the largest, if not the largest, losses of its kind at this time. Naturally, this raised interest regarding what caused these huge losses and called into question the events and circumstances surrounding and leading up to this disaster. There are two basic schools of thought regarding Metallgesellschafts strategy. The first is that it was a good strategy and had the potential to be successful and profitable. The other is that its strategy was risky and speculative. Despite the abundance of literature surrounding this event, there has been so resolution as to which viewpoint is correct. The aim is to remedy this via time-series data simulation, the stationary bootstrap, and Hansens Superior Predictive Ability (SPA) test. SPA tests can be used to determine if one specific method or procedure is outperformed by a benchmark method. Applied to Metallgesellschafts situation, SPA can answer once and for all if Metallgesellschaft unnecessarily took on too much risk, or had a good strategy.