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Futures Maturity and Hedging Effectiveness - The Case of Oil Futures

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Author Info

  • Ronald Ripple

    ()
    (Department of Economics, Macquarie University)

  • Imad Moosa

    (Department of Economics and Finance, La Trobe University)

Abstract

This paper examines the effect of the maturity of the futures contact used as the hedging instrument on the effectiveness of futures hedging. For this purpose, daily and monthly data on the WTI crude oil futures and spot prices are used to work out the hedge ratios and the measures of hedging effectiveness resulting from using the near-month contract and those resulting from the use of a more distant (six-month) contract. The results show that futures hedging is more effective when the near-month contract is used. They also reveal that hedge ratios are lower for near-month hedging. Some explanations are presented for these findings.

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File URL: http://www.econ.mq.edu.au/research/2005/HedgingEffectiveness.pdf
File Function: First Version, 2005
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Bibliographic Info

Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0513.

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Length: 20 pages.
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:mac:wpaper:0513

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Postal: Sydney NSW 2109
Web page: http://www.econ.mq.edu.au/
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Cited by:
  1. Guglielmo Caporale & Davide Ciferri & Alessandro Girardi, 2010. "Time-varying spot and futures oil price dynamics," Quaderni del Dipartimento di Economia, Finanza e Statistica 75/2010, Università di Perugia, Dipartimento Economia, Finanza e Statistica.

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