IDEAS home Printed from https://ideas.repec.org/p/ags/saclwp/142546.html
   My bibliography  Save this paper

Effectiveness of hedging within the high price volatility context

Author

Listed:
  • Revoredo-Giha, Cesar
  • Zuppiroli, Marco

Abstract

The instability of prices and the hypothesis that speculative behaviour was one of its sources has brought renewed interest in the futures markets. In this paper, we concentrate on the European wheat futures markets (feed and milling) and the CBOT’s wheat contract as a comparison. The purpose of the paper is to study whether those markets still allow substitution price risk for basis risk. This implicitly is a test of whether the increasing presence of speculation in futures market have made them divorced from the physical markets, and therefore, not useful for commercial entities. We study two aspects: efficiency and hedging effectiveness and our results indicate that there are still a good connection between physical and futures markets, and therefore, hedging can still play an important role protecting commodity handlers against price volatility.

Suggested Citation

  • Revoredo-Giha, Cesar & Zuppiroli, Marco, 2012. "Effectiveness of hedging within the high price volatility context," Working Papers 142546, Scottish Agricultural College, Land Economy Research Group.
  • Handle: RePEc:ags:saclwp:142546
    as

    Download full text from publisher

    File URL: http://purl.umn.edu/142546
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul H. Cootner, 1960. "Returns to Speculators: Telser versus Keynes," Journal of Political Economy, University of Chicago Press, vol. 68, pages 396-396.
    2. Lien, Donald, 2005. "The use and abuse of the hedging effectiveness measure," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 277-282.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    4. Irwin, Scott H. & Sanders, Dwight R. & Merrin, Robert P., 2009. "Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(02), pages 377-391, August.
    5. Sergio H. Lence, 2009. "Do Futures Benefit Farmers?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 154-167.
    6. 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.
    7. Roger W. Gray, 1961. "The Search for a Risk Premium," Journal of Political Economy, University of Chicago Press, vol. 69, pages 250-250.
    8. Castelino, Mark G, 1989. "Basis Volatility: Implications for Hedging," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(2), pages 157-172, Summer.
    9. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April.
    10. Lien, Donald & Tse, Y K, 2002. " Some Recent Developments in Futures Hedging," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 357-396, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. repec:eee:rensus:v:81:y:2018:i:p1:p:1002-1018 is not listed on IDEAS
    2. Chang, Chia-Lin & McAleer, Michael & Wang, Yu-Ann, 2018. "Modelling volatility spillovers for bio-ethanol, sugarcane and corn spot and futures prices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 1002-1018.
    3. Chang, C-L. & McAleer, M.J. & Wang, Y-A., 2016. "Modelling Volatility Spillovers for Bio-ethanol, Sugarcane and Corn," Econometric Institute Research Papers EI2016-15, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

    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:ags:saclwp:142546. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/lesacuk.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.