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The Derived Demand with Hedging Cost Uncertainty in the Futures Markets

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  • Paroush, Jacob
  • Wolf, Avner

Abstract

This study explores the significance of production technology and other parameters on the employment of inputs and hedging. The paper establishes an explicit relationship between the risk as well as prices parameters and the derived demand, production and hedging. The authors find that the futures price relative to the expected spot price affects the demand for production factors. Additionally, the presence of basis risk determines the impact of prices and risk parameters on the derived demand for inputs. Production technology is instrumental in fixing the size of the change in the demand, given a change in the model's parameters. Copyright 1992 by Royal Economic Society.

Suggested Citation

  • Paroush, Jacob & Wolf, Avner, 1992. "The Derived Demand with Hedging Cost Uncertainty in the Futures Markets," Economic Journal, Royal Economic Society, vol. 102(413), pages 831-844, July.
    • Handle: RePEc:ecj:econjl:v:102:y:1992:i:413:p:831-44
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    Citations

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    Cited by:

    1. Janet S. Netz, 1995. "An Empirical Test of the Effect of Basis Risk on Cash Market Postitions," Risk and Insurance 9501001, University Library of Munich, Germany.
    2. Broll, Udo & Eckwert, Bernhard, 1998. "Export and Hedging Decision with State-Dependent Utility," International Review of Economics & Finance, Elsevier, vol. 7(3), pages 247-253.
    3. Dionne, Georges & Santugini, Marc, 2014. "Entry, imperfect competition, and futures market for the input," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 70-83.
    4. Alghalith, Moawia, 2006. "A note on hedging cost and basis risks," Economic Modelling, Elsevier, vol. 23(3), pages 534-537, May.
    5. Dalal, Ardeshir J. & Alghalith, Moawia, 2009. "Production decisions under joint price and production uncertainty," European Journal of Operational Research, Elsevier, vol. 197(1), pages 84-92, August.
    6. Joost M.E. Pennings & Raymond M. Leuthold, 1999. "Commodity Futures Contract Viability: A Multidisciplinary Approach," Finance 9905002, University Library of Munich, Germany.
    7. Georges Dionne & Marc Santugini, 2015. "Production Flexibility and Hedging," Risks, MDPI, vol. 3(4), pages 1-10, December.
    8. Moawia Alghalith, 2008. "Hedging and production decisions under uncertainty: A survey," Papers 0810.0917, arXiv.org.
    9. Kim, Jae-Gyeong, 1993. "Futures markets in an open economy," ISU General Staff Papers 1993010108000011461, Iowa State University, Department of Economics.
    10. Moawia Alghalith & Ricardo Lalloob, 2012. "A General Empirical Model of Hedging," JRFM, MDPI, vol. 5(1), pages 1-19, December.
    11. repec:ebl:ecbull:v:4:y:2005:i:15:p:1-6 is not listed on IDEAS
    12. Gagnon, Louis & Lypny, Gregory J. & McCurdy, Thomas H., 1998. "Hedging foreign currency portfolios," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 197-220, September.
    13. Moawia Alghalith, 2005. "Input demand with cost uncertainty," International Economic Journal, Taylor & Francis Journals, vol. 19(1), pages 115-123.

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