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Hedging Effectiveness of China’s Hog Futures: A National and Provincial Assessment Using Copula-Based Strategies

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  • Liang, Pan
  • Chen, Xuan
  • Shi, Longzhong

Abstract

China launched its hog futures market on January 8, 2021, yet its impact remains largely unexplored. We assess the hedging effectiveness of China’s hog futures using a GJR-GARCH model with various copula functions. Utilizing hog futures prices from February 2021 to August 2023, along with national and provincial spot prices, we examine hedging effectiveness at both the national and provincial levels. Our findings suggest that hedging with hog futures reduces price volatility and increases mean returns at both the national and provincial levels, while regional heterogeneities in hedging effectiveness are observed. Moreover, the symmetrized Joe-Clayton (SJC) copula and the time-varying SJC copula, which capture asymmetric tail dependence, outperform alternative copula functions in terms of model fit, hedge ratios, and hedging effectiveness. These findings suggest that the establishment of China’s hog futures market has significantly stabilized spot prices, mitigated risks, and enhanced returns, while accounting for regional differences in hedging strategies and improving market liquidity in underperforming areas remain critical for optimizing hedging outcomes.

Suggested Citation

  • Liang, Pan & Chen, Xuan & Shi, Longzhong, 2025. "Hedging Effectiveness of China’s Hog Futures: A National and Provincial Assessment Using Copula-Based Strategies," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360694, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:360694
    DOI: 10.22004/ag.econ.360694
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    References listed on IDEAS

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    1. Edward Frees & Emiliano Valdez, 1998. "Understanding Relationships Using Copulas," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(1), pages 1-25.
    2. Andrew J. Patton, 2006. "Modelling Asymmetric Exchange Rate Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, May.
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