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Cash Ethanol Cross-Hedging Opportunities

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  • Franken, Jason R.V.
  • Parcell, Joseph L.
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    Abstract

    Increased use of alternative fuels and low commodity prices have contributed to the recent expansion of the U.S. ethanol industry. As with any competitive industry, some level of output price risk exists in the form of volatility; yet, no actively traded ethanol futures market exists to mitigate output price risk. This study reports estimated minimum variance cross-hedge ratios between Detroit spot cash ethanol and the New York Mercantile Exchange unleaded gasoline futures for 1-, 4-, 8-, 12-, 16-, 20-, 24-, and 28-week hedge horizons. The research suggests that a one-to-one cross-hedge ratio is not appropriate for some horizons.

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    File URL: http://purl.umn.edu/43152
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    Bibliographic Info

    Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

    Volume (Year): 35 (2003)
    Issue (Month): 03 (December)
    Pages:

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    Handle: RePEc:ags:joaaec:43152

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    Web page: http://www.saea.org/jaae/jaae.htm
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    Related research

    Keywords: cross-hedging; ethanol; gas; G13; Q13; Q42;

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    Cited by:
    1. Ramazan Sari & Shawkat Hammoudeh & Chia-Lin Chang & Michael McAleer, 2011. "Causality Between Market Liquidity and Depth for Energy and Grains," KIER Working Papers 769, Kyoto University, Institute of Economic Research.
    2. Dahlgran, Roger A., 2007. "Inventory and Transformation Hedging Effectiveness in Corn Crushing," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37557, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    3. Chia-Lin Chang & Li-Hsueh Chen & Shawkat Hammoudeh & Michael McAleer, 2010. "Asymmetric Adjustments in the Ethanol and Grains Markets," KIER Working Papers 752, Kyoto University, Institute of Economic Research.
    4. Hammoudeh, S.M. & Sarafrazi, S. & Chang, C-L. & McAleer, M.J., 2011. "The Dynamics of Energy-Grain Prices with Open Interest," Econometric Institute Research Papers EI 2011-19, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    5. Zhao, Jieyuan & Goodwin, Barry K., 2012. "Dynamic Cross-Hedge Ratios: An Application of Copula Models," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124610, Agricultural and Applied Economics Association.

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