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Short-run deviations and time-varying hedge ratios: Evidence from agricultural futures markets

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  • Choudhry, Taufiq
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    Abstract

    This paper investigates the hedging effectiveness of time-varying hedge ratios in the agricultural commodities futures markets using four different versions of the GARCH models. The GARCH models applied are the standard bivariate GARCH, the bivariate BEKK GARCH, the bivariate GARCH-X and the bivariate BEKK GARCH-X. Futures data for corn, coffee, wheat, sugar, soybeans, live cattle and hogs are applied. Comparison of the hedging effectiveness is done for the within sample period (1980-2004), and two out-of-sample periods (2002-2004 and 2003-2004). Results indicate superior performance of the portfolios based on the GARCH-X model estimated hedge ratio during all periods.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 18 (2009)
    Issue (Month): 1-2 (March)
    Pages: 58-65

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    Handle: RePEc:eee:finana:v:18:y:2009:i:1-2:p:58-65

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Hedge ratio GARCH BEKK GARCH GARCH-X BEKK GARCH-X and variance;

    References

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    Cited by:
    1. Caporin, Massimiliano, 2013. "Equity and CDS sector indices: Dynamic models and risk hedging," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 261-275.
    2. Shawkat Hammoudeh & Yuan Yuan & Michael McAleer & Mark A. Thompson, 2009. "Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies," CIRJE F-Series CIRJE-F-684, CIRJE, Faculty of Economics, University of Tokyo.
    3. Anton Bekkerman, 2011. "Time-varying hedge ratios in linked agricultural markets," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 179-200, July.

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