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Impact Of Cash Settlement On Feeder Cattle Basis

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  • Kenyon, David E.
  • Bainbridge, Bruce
  • Ernst, Robin
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    Abstract

    The feeder cattle futures contract specifications were changed in 1986 from physical delivery to cash settlement. The Chicago Mercantile Exchange expected this change to reduce basis variability and improve the ability of hedgers to predict basis. This study analyzes the basis for individual lots of feeder cattle before and after cash settlement. Basis equations were estimated by breed, sex, weight, grade, and season. These equations were used to predict basis. The results indicate basis variability was not reduced and hedger ability to forecast basis, in general, was not improved significantly under cash settlement compared to physical delivery.

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    Bibliographic Info

    Article provided by Western Agricultural Economics Association in its journal Western Journal of Agricultural Economics.

    Volume (Year): 16 (1991)
    Issue (Month): 01 (July)
    Pages:

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    Handle: RePEc:ags:wjagec:32624

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    Web page: http://waeaonline.org/
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    Related research

    Keywords: Marketing;

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    Cited by:
    1. Chan, Leo & Lien, Donald, 2003. "Using high, low, open, and closing prices to estimate the effects of cash settlement on futures prices," International Review of Financial Analysis, Elsevier, vol. 12(1), pages 35-47.
    2. Lien, Donald & Tse, Yiu Kuen, 2002. "Physical delivery versus cash settlement: an empirical study on the feeder cattle contract," Journal of Empirical Finance, Elsevier, vol. 9(4), pages 361-371, November.
    3. Chan, Leo & Lien, Donald, 2002. "Measuring the impacts of cash settlement: A stochastic volatility approach," International Review of Economics & Finance, Elsevier, vol. 11(3), pages 251-263.
    4. Lien, Donald & Tse, Yiu Kuen, 2006. "A survey on physical delivery versus cash settlement in futures contracts," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 15-29.

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