The Impact of Backwardation on Hedgers' Demand for Currency Futures Contracts: Theory versus Empirical Evidence
AbstractThis study compares the relation between backwardation and optimal hedging demand as suggested by economic theory to empirical findings concerning the impact of weak and strong backwardation on hedgers' trading volume in six long and short currency futures contracts. First, the optimal hedging demand of a representative importer, with and without hedging costs, is derived. Then hedgers' position data from the Commitments of Traders (COT) report are regressed on weak and strong backwardation. The empirical results offer little support for the hypotheses suggested by economic theory.
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Bibliographic InfoPaper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 35698.
Date of creation: 01 Feb 2008
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Publication status: Published in Darmstadt Discussion Papers in Economics . 190 (2008-02-01)
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More information through EDIRC
Backwardation; hedging; currency futures;
Find related papers by JEL classification:
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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