Why do farmers have so little interest in futures markets?
A farm financial model with leverage and investment in two farm enterprises is specified. The model is extended to incorporate futures hedging and the Separation Theorem is used to show that optimal hedging is zero. The assumption of a risk-free asset is relaxed and, while this leads to a violation of the Separation Theorem, the result that optimal hedging is zero is maintained providing that futures markets are efficient. It is concluded that if capital markets are efficient then farmers will have little interest in futures markets except to speculate.© 2002 Elsevier Science B.V. All rights reserved.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lapan, Harvey E. & Moschini, GianCarlo, 1994.
"Futures Hedging Under Price, Basis and Production Risk,"
Staff General Research Papers Archive
10041, Iowa State University, Department of Economics.
- Harvey Lapan & Giancarlo Moschini, 1994. "Futures Hedging Under Price, Basis, and Production Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 465-477.
- Tsiang, S C, 1972. "The Rationale of the Mean-Standard Deviation Analysis, Skewness Preference, and the Demand for Money," American Economic Review, American Economic Association, vol. 62(3), pages 354-71, June.
- Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
- Newbery, David M., 1988. "On the accuracy of the mean-variance approximation for futures markets," Economics Letters, Elsevier, vol. 28(1), pages 63-68.
- Simmons, Phil & Rambaldi, Alicia N., 1997. "Potential demand for hedging by Australian wheat producers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 41(2), June.
- B. Wade Brorsen, 1995. "Optimal Hedge Ratios with Risk-Neutral Producers and Nonlinear Borrowing Costs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 174-181.
When requesting a correction, please mention this item's handle: RePEc:eee:agecon:v:27:y:2002:i:1:p:1-6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.