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Can Multiyear Rollover Hedging Increase Mean Returns?

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  • Yoon, Byung-Sam
  • Brorsen, B. Wade

Abstract

Both market advisors and researchers have often suggested multiyear rollover hedging as a way to increase producer returns. This study determines whether rollover hedging can increase expected returns for producers. For rollover hedging to increase expected returns, futures prices must follow a mean-reverting process. To test for the existence of mean reversion in agricultural commodity prices, this study uses a longer set of price data and a wider range of test procedures than past research. With the use of both the return predictability test from long-horizon regression and the variance ratio test, we find that mean reversion does not exist in futures prices for corn, wheat, soybean, soybean oil, and soybean meal. The findings are consistent with the weak form of market efficiency. Simulated trading results for 3-year rollover hedges provide additional evidence that the expected returns to the rollover hedging strategies are not statistically different from the expected returns to routine annual hedges and cash sale at harvest.

Suggested Citation

  • Yoon, Byung-Sam & Brorsen, B. Wade, 2005. "Can Multiyear Rollover Hedging Increase Mean Returns?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(1), pages 1-14, April.
    • Handle: RePEc:ags:joaaec:43713
    DOI: 10.22004/ag.econ.43713
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    References listed on IDEAS

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    Cited by:

    1. Fernandez-Perez, Adrian & Frijns, Bart & Gafiatullina, Ilnara & Tourani-Rad, Alireza, 2022. "Profit margin hedging in the New Zealand dairy farming industry," Journal of Commodity Markets, Elsevier, vol. 26(C).

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    More about this item

    Keywords

    Agricultural Finance; Risk and Uncertainty;

    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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