IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/doi10.1080-23322039.2014.946998.html
   My bibliography  Save this article

The management of price risk in Iranian dates: An application of futures instruments

Author

Listed:
  • Habibeh Sherafatmand
  • Saeed Yazdani

Abstract

Effective risk management is an important aspect of farming. Risk management involves choosing among alternatives that reduce the financial effects of the uncertainties of weather, yields, prices, government policies, and other factors that can cause wide swings in farm income. To deal with price uncertainty, this paper focuses on futures markets and calculates hedge ratio for dates. A bivariate BEKK GARCH model is used to determine time-varying hedge ratios. The results show that the average BEKK BGARCH hedge ratio for dates is .7. Also in this paper, the hedge ratio, which takes into consideration the producers' risk-averse parameter, is estimated [Extended mean Gini hedge ratio (EMGHR)]. Results of EMGHR recommended that risk-averse producers, who have risky parameter equal to 50, could reduce their price risk to 60% by attending futures markets.

Suggested Citation

  • Habibeh Sherafatmand & Saeed Yazdani, 2014. "The management of price risk in Iranian dates: An application of futures instruments," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-12, December.
    • Handle: RePEc:taf:oaefxx:doi:10.1080/23322039.2014.946998
    DOI: 10.1080/23322039.2014.946998
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2014.946998
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23322039.2014.946998?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Donald Lien & Xiangdong Luo, 1993. "Estimating the extended mean‐gini coefficient for futures hedging," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(6), pages 665-676, September.
    2. Cecchetti, Stephen G & Cumby, Robert E & Figlewski, Stephen, 1988. "Estimation of the Optimal Futures Hedge," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 623-630, November.
    3. Christos Floros & Dimitrios Vougas, 2004. "Hedge ratios in Greek stock index futures market," Applied Financial Economics, Taylor & Francis Journals, vol. 14(15), pages 1125-1136.
    4. Donald Lien & Y. K. Tse & Albert Tsui, 2002. "Evaluating the hedging performance of the constant-correlation GARCH model," Applied Financial Economics, Taylor & Francis Journals, vol. 12(11), pages 791-798.
    5. Demirer, Riza & Lien, Donald & Shaffer, David R., 2005. "Comparisons of short and long hedge performance: the case of Taiwan," Journal of Multinational Financial Management, Elsevier, vol. 15(1), pages 51-66, February.
    6. Haim Shalit & Shlomo Yitzhaki, 2005. "The Mean‐Gini Efficient Portfolio Frontier," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 59-75, March.
    7. 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(4), pages 535-551, December.
    8. Ringuest, Jeffrey L. & Graves, Samuel B. & Case, Randy H., 2004. "Mean-Gini analysis in R&D portfolio selection," European Journal of Operational Research, Elsevier, vol. 154(1), pages 157-169, April.
    9. C. Sherman Cheung & Clarence C. Y. Kwan & Patrick C. Y. Yip, 1990. "The hedging effectiveness of options and futures: A mean‐gini approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 10(1), pages 61-73, February.
    10. Anil K. Bera & Philip Garcia & Jae-Sun Roh, 1997. "Estimation of Time-Varying Hedge Ratios for Corn and Soybeans: BGARCH and Random Coefficient Approaches," Finance 9712007, University Library of Munich, Germany.
    11. 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 109-124, April-Jun.
    12. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    13. Maria Kasch-Haroutounian & Simon Price, 2001. "Volatility in the transition markets of Central Europe," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 93-105.
    14. H. N. E. BystrOm, 2003. "The hedging performance of electricity futures on the Nordic power exchange," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 1-11.
    15. Soosung Hwang & Steve Satchell, 2005. "GARCH model with cross-sectional volatility: GARCHX models," Applied Financial Economics, Taylor & Francis Journals, vol. 15(3), pages 203-216.
    16. Gokce Soydemir & A. George Petrie, 2003. "Intraday information transmission between DJIA spot and futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 13(11), pages 817-827.
    17. Gagnon, Louis & Lypny, Gregory J. & McCurdy, Thomas H., 1998. "Hedging foreign currency portfolios," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 197-220, September.
    18. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
    19. Choudhry, Taufiq, 2009. "Short-run deviations and time-varying hedge ratios: Evidence from agricultural futures markets," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 58-65, March.
    20. Robert J. Myers, 1991. "Estimating time‐varying optimal hedge ratios on futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 11(1), pages 39-53, February.
    21. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bessler, Wolfgang & Leonhardt, Alexander & Wolff, Dominik, 2016. "Analyzing hedging strategies for fixed income portfolios: A Bayesian approach for model selection," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 239-256.
    2. Rozaimah Zainudin & Roselee Shah Shaharudin, 2011. "Multi Mean Garch Approach to Evaluating Hedging Performance in the Crude Palm Oil Futures Market," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 7(1), pages 111-130.
    3. Hsiang-Tai Lee & Jonathan Yoder, 2007. "A bivariate Markov regime switching GARCH approach to estimate time varying minimum variance hedge ratios," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1253-1265.
    4. Hsiu‐Chuan Lee & Cheng‐Yi Chien & Tzu‐Hsiang Liao, 2009. "Determination of stock closing prices and hedging performance with stock indices futures," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 827-847, December.
    5. John Cotter & Jim Hanly, 2006. "Reevaluating hedging performance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(7), pages 677-702, July.
    6. 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.
    7. Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2022. "The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets," Research in International Business and Finance, Elsevier, vol. 59(C).
    8. Stavros Degiannakis & Christos Floros & Enrique Salvador & Dimitrios Vougas, 2022. "On the stationarity of futures hedge ratios," Operational Research, Springer, vol. 22(3), pages 2281-2303, July.
    9. Martínez, Beatriz & Torró, Hipòlit, 2015. "European natural gas seasonal effects on futures hedging," Energy Economics, Elsevier, vol. 50(C), pages 154-168.
    10. Chang, Chia-Lin & González-Serrano, Lydia & Jimenez-Martin, Juan-Angel, 2013. "Currency hedging strategies using dynamic multivariate GARCH," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 94(C), pages 164-182.
    11. Zanotti, Giovanna & Gabbi, Giampaolo & Geranio, Manuela, 2010. "Hedging with futures: Efficacy of GARCH correlation models to European electricity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(2), pages 135-148, April.
    12. Michael S. Haigh & Henry L. Bryant, 2000. "The effect of barge and ocean freight price volatility in international grain markets," Agricultural Economics, International Association of Agricultural Economists, vol. 25(1), pages 41-58, June.
    13. Alizadeh, Amir H. & Huang, Chih-Yueh & van Dellen, Stefan, 2015. "A regime switching approach for hedging tanker shipping freight rates," Energy Economics, Elsevier, vol. 49(C), pages 44-59.
    14. Moschini, GianCarlo & Myers, Robert J., 2002. "Testing for constant hedge ratios in commodity markets: a multivariate GARCH approach," Journal of Empirical Finance, Elsevier, vol. 9(5), pages 589-603, December.
    15. Michael S. Haigh & Matthew T. Holt, 2002. "Crack spread hedging: accounting for time-varying volatility spillovers in the energy futures markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(3), pages 269-289.
    16. repec:wyi:journl:002103 is not listed on IDEAS
    17. Chen, Xiangyu & Tongurai, Jittima, 2021. "Cross-commodity hedging for illiquid futures: Evidence from China's base metal futures market," Global Finance Journal, Elsevier, vol. 49(C).
    18. Bryant, Henry L. & Haigh, Michael S., 2003. "Comparing The Performances Of The Partial Equilibrium And Time-Series Approaches To Hedging," Working Papers 28580, University of Maryland, Department of Agricultural and Resource Economics.
    19. Haigh, Michael S. & Bryant, Henry L., 2001. "The effect of barge and ocean freight price volatility in international grain markets," Agricultural Economics, Blackwell, vol. 25(1), pages 41-58, June.
    20. Shashi Gupta & Himanshu Choudhary & D.R. Agarwal, 2017. "Hedging Efficiency of Indian Commodity Futures," Paradigm, , vol. 21(1), pages 1-20, June.
    21. Atreya Chakraborty & John Barkoulas, 1999. "Dynamic futures hedging in currency markets," The European Journal of Finance, Taylor & Francis Journals, vol. 5(4), pages 299-314.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:doi:10.1080/23322039.2014.946998. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.