IDEAS home Printed from https://ideas.repec.org/a/ier/iecrev/v33y1992i2p479-86.html
   My bibliography  Save this article

A Note on Futures Markets with Small Price and Production Risks

Author

Listed:
  • Honda, Yuzo
  • Ohta, Hiroshi

Abstract

When the spot price and production risk are jointly normally distributed, the mean-variance approach has little theoretical justification. The authors use Taylor approximations instead and show the three results. One, farmers hedge less than expected production when the futures price is less than or equal to the expected spot price. Two, when the futures price equals the expected spot price, farmers facing production risk produce less than those without production risk. Three, normal backwardation (contango) prevails in the markets when correlation between the spot price and production risk is smaller (greater) in absolute value than the ratio of coefficients of variation of these variables. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Honda, Yuzo & Ohta, Hiroshi, 1992. "A Note on Futures Markets with Small Price and Production Risks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 479-486, May.
    • Handle: RePEc:ier:iecrev:v:33:y:1992:i:2:p:479-86
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0020-6598%28199205%2933%3A2%3C479%3AANOFMW%3E2.0.CO%3B2-4&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hennessy, David A., 1997. "Equilibrium in production and futures markets," Journal of Economics and Business, Elsevier, vol. 49(5), pages 399-418.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ier:iecrev:v:33:y:1992:i:2:p:479-86. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/deupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.