Cross Hedging the Swedish SEK with commodities : Cross Hedging the Swedish Krona with Global Commodities. A variance and Tail Risk Analysis Across Macroeconomic Crises, 1993 - 2024.

Sammanfattning

Sweden operates as a small open economy, making the Swedish SEK highly sensitive to global risk sentiment and vulnerable to severe depreciation during macroeconomic shocks. This thesis evaluates the cross hedging effectiveness of global commodities (metals, energy and agricultural) for a SEK based portfolio between 1993 and 2024. To determine if hedging performance is regime dependent, this study isolates four specific crisis periods: the Dotcom Bubble, the 2008 Global Financial Crisis, COVID-19 and the Russia – Ukraine war. The empirical framework is based on Ederington’s variance minimizing hedge ratio alongside Value-at-Risk and Conditional Value-at-risk to measure both volatility and downside protection. To ensure the findings are robust, a bootstrap resampling method is utilized to calculate significance. The empirical findings reveal a critical disconnect between general variance reduction and extreme tail risk mitigation. While several commodities showed great performance in reducing variance across different crisis regimes, tail risk analysis reveals that only gold acted as a true protective floor. In contrast, agriculture commodities like corn and wheat failed to provide statistically significant reductions in VaR and CVaR, highlighting a disconnect between variance reduction and downside protection. This study confirms that cross hedging effectiveness is fundamentally dictated by the structural drivers of the specific macroeconomic shock. A cross hedge optimized solely for average volatility reduction leaves the investor in question dangerously exposed to extreme market crashes, confirming the need to align the commodity selection with the specific nature of the shock.