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Hedge Effectiveness for Western Australia Crops

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  • Guo, Zhibo
  • White, Ben
  • Mugera, Amin

Abstract

This paper reports a series of pre-trade investigations into the hedge effectiveness of futures contracts of wheat, barley, and canola for Western Australia hedgers. Hedge ratios were estimated through the ordinary least square model, the vector autoregressive model, and the vector error-correction model. Hedging effectiveness was measured using risk reduction method and utility maximization method. Results indicate that, despite being thinly traded contracts, futures on Australia Securities Exchange are more effective in wheat, barley, and canola in terms of price risks minimization and utility maximization, comparing with futures contracts on Chicago Board of Trade and Intercontinental Exchange. Results suggest that using the local exchange is more efficient in risk management.

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File URL: http://purl.umn.edu/152154
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Bibliographic Info

Paper provided by Australian Agricultural and Resource Economics Society in its series 2013 Conference (57th), February 5-8, 2013, Sydney, Australia with number 152154.

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Date of creation: 2013
Date of revision:
Handle: RePEc:ags:aare13:152154

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Related research

Keywords: Hedge Effectiveness; Hedge Ratio; Western Australia Crops; Crop Production/Industries; International Relations/Trade; Research Methods/ Statistical Methods;

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References

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  1. Simmons, Phil, 2002. "Why do farmers have so little interest in futures markets?," Agricultural Economics, Blackwell, vol. 27(1), pages 1-6, May.
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  3. repec:wop:ilucae:9603 is not listed on IDEAS
  4. 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.
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  14. Jabir Ali & Kriti Bardhan Gupta, 2011. "Efficiency in agricultural commodity futures markets in India: Evidence from cointegration and causality tests," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 162-178, July.
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  16. Wenling Yang & David E. Allen, 2005. "Multivariate GARCH hedge ratios and hedging effectiveness in Australian futures markets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(2), pages 301-321.
  17. P. J. Dawson & A. L. Tiffin & B. White, 2000. "Optimal Hedging Ratios for Wheat and Barley at the LIFFE: A GARCH Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 51(2), pages 147-161.
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