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Hedging effectiveness of European wheat futures markets: An application of multivariate GARCH models

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  • Revoredo-Giha, Cesar
  • Zuppiroli, Marco

Abstract

The instability of commodity prices and the hypothesis that speculative behaviour was one of its causes has brought renewed interest in futures markets. In this paper, the hedging effectiveness of European and US wheat futures markets were studied to test whether they were affected by the high price instability after 2007. In particular, the focus of the paper is to test of whether the increasing presence of financialization of commodity trading in futures markets mentioned in the literature have made them divorced from the physical markets. A multivariate GARCH model was applied to compute optimal hedging ratios. Important evidence was found of an improvement, after 2007, in the effectiveness of hedging with the European futures.

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  • Revoredo-Giha, Cesar & Zuppiroli, Marco, 2015. "Hedging effectiveness of European wheat futures markets: An application of multivariate GARCH models," 2015 Conference, August 9-14, 2015, Milan, Italy 212486, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:212486
    DOI: 10.22004/ag.econ.212486
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    7. Revoredo-Giha, Cesar & Zuppiroli, Marco, 2013. "Commodity futures markets: are they an effective price risk management tool for the European wheat supply chain?," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 2(3), pages 1-19, December.
    8. STEVEN C. BLANK & COLIN A. CARTER & JEFFREY McDONALD, 1997. "Is The Market Failing Agricultural Producers Who Wish To Manage Risks?," Contemporary Economic Policy, Western Economic Association International, vol. 15(3), pages 103-112, July.
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    Cited by:

    1. Čermák, M. & Malec, K. & Maitah, M., 2017. "Price Volatility Modelling – Wheat: GARCH Model Application," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 9(4).
    2. Carlotta Penone & Elisa Giampietri & Samuele Trestini, 2021. "Hedging Effectiveness of Commodity Futures Contracts to Minimize Price Risk: Empirical Evidence from the Italian Field Crop Sector," Risks, MDPI, vol. 9(12), pages 1-14, December.
    3. Algirdas Justinas Staugaitis & Bernardas Vaznonis, 2022. "Short-Term Speculation Effects on Agricultural Commodity Returns and Volatility in the European Market Prior to and during the Pandemic," Agriculture, MDPI, vol. 12(5), pages 1-26, April.

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    More about this item

    Keywords

    Demand and Price Analysis; Marketing;

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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