Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting
This paper examines returns from holding 30- and 90-day call and put positions, and the forecasting performance of implied volatility in the live and feeder cattle options markets. Implied volatility is an upwardly biased and inefficient predictor of realized volatility, with bias most pronounced in live cattle. While significant returns exist from several positions, strategies are strongly affected by drifts in futures prices. However, returns from live cattle puts are persistent, and evidence from 30-day straddle returns indicates the live cattle market overprices volatility. Overpricing is consistent with volatility risk, the effect of which is magnified by extreme market conditions.
Volume (Year): 36 (2011)
Issue (Month): 1 (April)
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- Good, Darrel L. & Irwin, Scott H. & Isengildina, Olga, 2006.
"The Value of USDA Situation and Outlook Information in Hog and Cattle Markets,"
Journal of Agricultural and Resource Economics,
Western Agricultural Economics Association, vol. 31(02), August.
- Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2005. "The Value of USDA Situation and Outlook Information in Hog and Cattle Markets," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19050, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- Andrew McKenzie & Michael Thomsen & Josh Phelan, 2007. "How do you straddle hogs and pigs? Ask the Greeks!," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 511-520.
- Egelkraut, Thorsten M. & Garcia, Philip, 2006. "Intermediate Volatility Forecasts Using Implied Forward Volatility: The Performance of Selected Agricultural Commodity Options," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(03), December.
- Yanhong H. Jin & Gabriel J. Power & Levan Elbakidze, 2008. "The Impact of North American BSE Events on Live Cattle Futures Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(5), pages 1279-1286.
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