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Multiperiod optimal hedging ratios: Methodological aspects and application to wheat markets

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  • Gianluca, Stefani
  • Tiberti, Marco

Abstract

This work deals with methodological and empirical issues related to multiperiod optimal hedging OLS estimators. We propose an analytical formula for the multiperiod minimum variance hedging ratio starting from the triangular representation of a cointegrated system DGP. Since estimating the hedge ratio matching the frequency of data with the hedging horizon leads to a sample size reduction problem, we carry out a Monte Carlo study to investigate the pattern and hedging efficiency of OLS hedging ratio based on overlapping vs non-overlapping observations exploring a range of hedging horizons and sample sizes. Finally, we applied our approach to real data for a cross hedging related to soft wheat.

Suggested Citation

  • Gianluca, Stefani & Tiberti, Marco, 2014. "Multiperiod optimal hedging ratios: Methodological aspects and application to wheat markets," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182787, European Association of Agricultural Economists.
    • Handle: RePEc:ags:eaae14:182787
    DOI: 10.22004/ag.econ.182787
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    1. Lien, Donald, 2005. "The use and abuse of the hedging effectiveness measure," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 277-282.
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    5. Ederington, Louis H, 1979. "The Hedging Performance of the New Futures Markets," Journal of Finance, American Finance Association, vol. 34(1), pages 157-170, March.
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    2. Huang, Jinbo & Ding, Ashley & Li, Yong & Lu, Dong, 2020. "Increasing the risk management effectiveness from higher accuracy: A novel non-parametric method," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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