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Rollover Hedging

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Author Info

  • Yoon, Byung-Sam
  • Brorsen, B. Wade

Abstract

Both market advisors and researchers have often suggested rollover hedging as a way of increasing producer returns. This study tests whether rollover hedging can increase expected returns for producers. For rollover hedging to increase expected returns, futures prices must follow a mean-reverting process. Using both the return predictability test based on long-horizon regression and the variance ratio test, we find that mean reversion does not exist in futures prices for corn, wheat, soybeans, soybean oil and soybean meal. The findings are consistent with the weak form of market efficiency. The results of the study imply that rollover hedging should not be seriously considered as a marketing alternative. As long as the commodity markets are efficient, the efforts of producers to improve returns through market timing strategies will meet limited success over time.

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Bibliographic Info

Paper provided by NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2000 Conference, April 17-18 2000, Chicago, Illinois with number 18938.

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Date of creation: 2000
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Handle: RePEc:ags:ncrtci:18938

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Web page: http://www.agebb.missouri.edu/ncrext/ncr134/

Related research

Keywords: Rollover hedging; mean reversion; market efficiency; Marketing;

References

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  1. Scott H. Irwin & Carl R. Zulauf & Thomas E. Jackson, 1996. "Monte Carlo Analysis of Mean Reversion in Commodity Futures Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 387-399.
  2. Kim, Myung Jig & Nelson, Charles R & Startz, Richard, 1991. "Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence," Review of Economic Studies, Wiley Blackwell, vol. 58(3), pages 515-28, May.
  3. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1990. "Speculative Dynamics," NBER Working Papers 3242, National Bureau of Economic Research, Inc.
  4. Brorsen, B. Wade & Anderson, Kim B., 1999. "Agricultural Economics Research And Extension Marketing Programs: How Well Are They Integrated?," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 17(2).
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