Futures Maturity and Hedging Effectiveness - The Case of Oil Futures
AbstractThis 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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Bibliographic InfoPaper provided by Macquarie University, Department of Economics in its series Research Papers with number 0513.
Length: 20 pages.
Date of creation: Nov 2005
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
- NEP-ENE-2006-03-05 (Energy Economics)
- NEP-FMK-2006-03-05 (Financial Markets)
- NEP-RMG-2006-03-05 (Risk Management)
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- 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.
- Guglielmo Maria Caporale & Davide Ciferri & Alessandro Girardi, 2010. "Time-Varying Spot and Futures Oil Price Dynamics," CESifo Working Paper Series 3015, CESifo Group Munich.
- Guglielmo Maria Caporale & Davide Ciferri & Allessandro Girardi, 2010. "Time-Varying Spot and Futures Oil Price Dynamics," Discussion Papers of DIW Berlin 988, DIW Berlin, German Institute for Economic Research.
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