Testing for constant hedge ratios in commodity markets: a multivariate GARCH approach
AbstractThe authors develop a new multivariate GARCH parameterization that is suitable for testing the hypothesis that the optimal futures hedge ratio is constant over time, given that the joint distribution of cash and futures prices is characterized by autoregressive conditional heteroskedasticity. The advantage of the new parameterization is that it allows for a flexible form of time-varying volatility, even under the null of a constant hedge ratio. The model is estimated using weekly corn prices. Statistical tests reject the null hypothesis of a constant hedge ratio and also reject the null that time variation in optimal hedge ratios can be explained solely by deterministic seasonality and time-to-maturity effects.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 9 (2002)
Issue (Month): 5 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jempfin
Other versions of this item:
- Moschini, GianCarlo & Myers, Robert J., 2002. "Testing for Constant Hedge Ratios in Commodity Markets: A Multivariate Garch Approach," Staff General Research Papers 1945, Iowa State University, Department of Economics.
- GianCarlo Moschini & Robert J. Myers, 2001. "Testing for Constant Hedge Ratios in Commodity Markets: A Multivariate GARCH Approach," Center for Agricultural and Rural Development (CARD) Publications 01-wp268, Center for Agricultural and Rural Development (CARD) at Iowa State University.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephen G. Cecchetti & Robert E. Cumby & Stephen Figlewski, 1986.
"Estimation of the optimal futures hedge,"
Research Working Paper
86-10, Federal Reserve Bank of Kansas City.
- Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
- Lumsdaine, Robin L, 1996. "Consistency and Asymptotic Normality of the Quasi-maximum Likelihood Estimator in IGARCH(1,1) and Covariance Stationary GARCH(1,1) Models," Econometrica, Econometric Society, vol. 64(3), pages 575-96, May.
- Lapan, Harvey E. & Moschini, GianCarlo & Hanson, Steven D., 1991. "Production Hedging and Speculative Decisions with Options and Future Markets," Staff General Research Papers 10810, Iowa State University, Department of Economics.
- Peter C.B. Phillips, 1988.
"Optimal Inference in Cointegrated Systems,"
Cowles Foundation Discussion Papers
866R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1989.
- Karp, Larry, 1985.
"Dynamic Hedging with Uncertain Production,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt20k8j5kh, Department of Agricultural & Resource Economics, UC Berkeley.
- Moschini, Giancarlo & Hennessy, David A., 2001.
"Uncertainty, risk aversion, and risk management for agricultural producers,"
Handbook of Agricultural Economics,
in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153
- Moschini, GianCarlo & Hennessy, David A., 2001. "Uncertainty, Risk Aversion, and Risk Management for Agricultural Producers," Staff General Research Papers 5323, Iowa State University, Department of Economics.
- Lence, Sergio H., 1995.
"On the optimal hedge under unbiased futures prices,"
Elsevier, vol. 47(3-4), pages 385-388, March.
- Lence, Sergio H., 1995. "On the Optimal Hedge Under Unbiased Futures Prices," Staff General Research Papers 5115, Iowa State University, Department of Economics.
- repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(04), pages 535-551, December.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Benninga, Simon & Eldor, Rafael & Zilcha, Itzhak, 1983. "Optimal hedging in the futures market under price uncertainty," Economics Letters, Elsevier, vol. 13(2-3), pages 141-145.
- Moschini, GianCarlo & Lapan, Harvey E., 1995. "Hedging Role of Options and Futures Under Joint Price, Basis and Production Risk, The," Staff General Research Papers 5137, Iowa State University, Department of Economics.
- Anderson, Ronald W & Danthine, Jean-Pierre, 1983. "The Time Pattern of Hedging and the Volatility of Futures Prices," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 249-66, April.
- Baillie, Richard T & Myers, Robert J, 1991. "Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-24, April-Jun.
- Moschini, Giancarlo & Lapan, Harvey, 1995. "The Hedging Role of Options and Futures under Joint Price, Basis, and Production Risk," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 1025-49, November.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.