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Basis Risk And Hedging Strategies For Australian Wheat Exports

Author

Listed:
  • Bond, Gary E.
  • Thompson, Stanley R.
  • Geldard, Jane M.

Abstract

Basis risk can play a significant role in the determination of effective hedging strategies. In this paper a portfolio framework is developed to examine the effect of basis risk on hedging strategies for Australian wheat exports. Monthly data for the period 1977 to 1984 were used to implement the analytical framework. While the traditional definition of hedging implies a hedge ratio of unity, the results of this research show that the average ratio of optimal hedge to stockholding is well below unity. Evolving market conditions can also cause the optimal hedge ratio to vary substantially over time.

Suggested Citation

  • Bond, Gary E. & Thompson, Stanley R. & Geldard, Jane M., 1985. "Basis Risk And Hedging Strategies For Australian Wheat Exports," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 29(3), pages 1-11, December.
  • Handle: RePEc:ags:ajaeau:22331
    DOI: 10.22004/ag.econ.22331
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    File URL: http://ageconsearch.umn.edu/record/22331/files/29030199.pdf
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    References listed on IDEAS

    as
    1. Gary E. Bond & Stanley R. Thompson, 1985. "Risk Aversion and the Recommended Hedging Ratio," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(4), pages 870-872.
    2. Mishkin, Frederic S, 1982. "Does Anticipated Monetary Policy Matter? An Econometric Investigation," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 22-51, February.
    3. Makin, John H, 1982. "Anticipated Money, Inflation Uncertainty and Real Economic Activity," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 126-134, February.
    4. Avraham Kamara, 1982. "Issues in futures markets: A survey," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 2(3), pages 261-294, September.
    5. C. A. Carter & R. M. A. Loyns, 1985. "Hedging Feedlot Cattle: A Canadian Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(1), pages 32-39.
    6. Rolfo, Jacques, 1980. "Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 100-116, February.
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    Citations

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    Cited by:

    1. Frechette, Darren L., 2000. "Hedging With Futures And Options: A Demand Systems Approach," 2000 Conference, April 17-18 2000, Chicago, Illinois 18941, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Prehn, Sören & Feil, Jan-Henning, 2017. "Why millers prefer to hedge at the KCBoT and grain elevator operators at the CBoT," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261262, European Association of Agricultural Economists.
    3. Simmons, Phil, 1999. "Does Separation Theorem Explain Why Farmers Have So Little Interest In Futures Markets?," Working Papers 12933, University of New England, School of Economics.
    4. Hegde, S. Aaron, 2004. "An Economic History Of The Failure Of Broiler Futures," 2004 Annual meeting, August 1-4, Denver, CO 20397, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    Keywords

    Marketing; Risk and Uncertainty;

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