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Commodity futures hedge ratios: A meta-analysis

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  • Białkowski, Jędrzej
  • Bohl, Martin T.
  • Perera, Devmali

Abstract

The derivative accounting standard requires hedging to satisfy the 80–125 rule to be eligible to apply the hedge accounting treatment. This means the hedging relationship should achieve hedging effectiveness within the 80%–125% level to qualify for hedge accounting. The appropriateness of this screening criterion is questioned in the existing literature, and there is hardly any empirical evidence to justify the suitability of this threshold level of hedge effectiveness. By applying meta-analysis methodology for 1699 hedge ratios collected from previous academic studies in commodity futures hedging, we show that the average optimal hedge ratio in commodity futures hedging in the academic literature mostly overlaps with the 80–125 threshold.

Suggested Citation

  • Białkowski, Jędrzej & Bohl, Martin T. & Perera, Devmali, 2023. "Commodity futures hedge ratios: A meta-analysis," Journal of Commodity Markets, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:jocoma:v:30:y:2023:i:c:s2405851322000332
    DOI: 10.1016/j.jcomm.2022.100276
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    More about this item

    Keywords

    Commodity markets; Derivative accounting; Hedging effectiveness; Meta-analysis; Optimal hedge ratio; 80–125 rule; Publication bias;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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