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Exploring optimal hedging strategy in Thai rice pledging scheme policy

Author

Listed:
  • Thanasin Tanompongphandh
  • Nattapong Puttanapong
  • Preesan Rakwatin

Abstract

From 2011-2014, the Thai government pledged to buy Thai paddy rice above the market price in order to subsidise Thai rice farmers and push the world rice price higher. However, the volatility of the rice price casts uncertainty over how much the Thai Government fiscal budget will be liable for. Following optimal hedging technique and mean-variance framework, this paper explores a hedging strategy for the Thai Government to protect against risk of price fluctuation. Based on in-sample and out-of-sample testing, result shows that the volatility of the returns decreases after optimally hedged portfolio are created. The results are robust against different estimation methods, namely, OLS, rolling OLS, and MGARCH model.

Suggested Citation

  • Thanasin Tanompongphandh & Nattapong Puttanapong & Preesan Rakwatin, 2018. "Exploring optimal hedging strategy in Thai rice pledging scheme policy," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 11(3), pages 198-208.
    • Handle: RePEc:ids:ijepee:v:11:y:2018:i:3:p:198-208
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