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Hedging Foreign Currency, Freight And Commodity Futures Portfolios: A Note

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Author Info

  • Haigh, Michael S.
  • Holt, Matthew T.

Abstract

Foreign exchange hedging ratios are simultaneously estimated alongside freight and commodity ratios in a time-varying portfolio framework. Foreign exchange futures are found to be by far the most important derivative instrument to be employed in order to reduce uncertainty for traders. Our results lend support to the decision by LIFFE to cease trading the BIFFEX freight futures contract because of its low levels of trading activity, which likely resulted from its apparent unattractiveness as a hedging instrument.

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File URL: http://purl.umn.edu/28573
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Bibliographic Info

Paper provided by University of Maryland, Department of Agricultural and Resource Economics in its series Working Papers with number 28573.

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Date of creation: 2002
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Handle: RePEc:ags:umdrwp:28573

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Keywords: Marketing;

References

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  1. Kavussanos, Manolis G. & Nomikos, Nikos K., 2000. "Constant vs. time-varying hedge ratios and hedging efficiency in the BIFFEX market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 36(4), pages 229-248, December.
  2. Michael S. Haigh & Matthew T. Holt, 2000. "Hedging Multiple Price Uncertainty in International Grain Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 82(4), pages 881-896.
  3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  4. Gagnon, Louis & Lypny, Gregory J. & McCurdy, Thomas H., 1998. "Hedging foreign currency portfolios," Journal of Empirical Finance, Elsevier, Elsevier, vol. 5(3), pages 197-220, September.
  5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  6. Goodwin, Barry K. & Grennes, Thomas & Wohlgenant, Michael K., 1990. "Testing the law of one price when trade takes time," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(1), pages 21-40, March.
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Cited by:
  1. Yun, Won-Cheol & Jae Kim, Hyun, 2010. "Hedging strategy for crude oil trading and the factors influencing hedging effectiveness," Energy Policy, Elsevier, vol. 38(5), pages 2404-2408, May.
  2. Su, EnDer, 2013. "Stock index hedge using trend and volatility regime switch model considering hedging cost," MPRA Paper 49190, University Library of Munich, Germany.
  3. Donald Lien & Fathali Firoozi, 2008. "Offshore Bidding and Currency Futures," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 125-136, August.
  4. Jin, Hyun Joung, 2008. "A Long Memory Conditional Variance Model for International Grain Markets," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(2), May.
  5. Power, Gabriel J. & Vedenov, Dmitry V., 2008. "The Shape of the Optimal Hedge Ratio: Modeling Joint Spot-Futures Prices using an Empirical Copula-GARCH Model," 2008 Conference, April 21-22, 2008, St. Louis, Missouri, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 37609, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  6. Jin, Hyun J. & Koo, Won W., 2006. "Offshore hedging strategy of Japan-based wheat traders under multiple sources of risk and hedging costs," Journal of International Money and Finance, Elsevier, Elsevier, vol. 25(2), pages 220-236, March.
  7. Goulas, Lambros & Skiadopoulos, George, 2012. "Are freight futures markets efficient? Evidence from IMAREX," International Journal of Forecasting, Elsevier, Elsevier, vol. 28(3), pages 644-659.

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