Effective Basemetal Hedging: The Optimal Hedge Ratio and Hedging Horizon
AbstractThis study investigates optimal hedge ratios in all base metal markets. Using recent hedging computation techniques, we find that 1) the short-run optimal hedging ratio is increasing in hedging horizon, 2) that the long-term horizon limit to the optimal hedging ratio is not converging to one but is slightly higher for most of these markets, and 3) that hedging effectiveness is also increasing in hedging horizon. When hedging with futures in these markets, one should hedge long-term at about 6 to 8 weeks with a slightly greater than one hedge ratio. These results are of interest to many purchasing departments and other commodity hedgers.
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Bibliographic InfoArticle provided by MDPI, Open Access Journal in its journal Journal of Risk and Financial Management.
Volume (Year): 1 (2008)
Issue (Month): 1 (December)
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Find related papers by JEL classification:
- C - Mathematical and Quantitative Methods
- E - Macroeconomics and Monetary Economics
- F2 - International Economics - - International Factor Movements and International Business
- F3 - International Economics - - International Finance
- G - Financial Economics
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