Textbook Estimators of Multiperiod Optimal Hedging Ratios: Methodological Aspects and Application to the European Wheat Market
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.
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- Ederington, Louis H, 1979. "The Hedging Performance of the New Futures Markets," Journal of Finance, American Finance Association, vol. 34(1), pages 157-70, March.
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- Lien, Da-Hsiang Donald, 1992. "Optimal hedging and spreading in cointegrated markets," Economics Letters, Elsevier, vol. 40(1), pages 91-95, September.
- Robert J. Myers & Steven D. Hanson, 1996. "Optimal Dynamic Hedging in Unbiased Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 13-20.
- Revoredo-Giha, C. & Zuppiroli, M., 2013.
"Commodity futures markets: are they an effective price risk management tool for the European wheat supply chain ?,"
2013 Second Congress, June 6-7, 2013, Parma, Italy
149773, Italian Association of Agricultural and Applied Economics (AIEAA).
- Revoredo-Giha, Cesar & Zuppiroli, Marco, 0. "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), issue 3.
- Lien, Donald, 2005. "The use and abuse of the hedging effectiveness measure," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 277-282.
- Francis In & Sangbae Kim, 2006. "The Hedge Ratio and the Empirical Relationship between the Stock and Futures Markets: A New Approach Using Wavelet Analysis," The Journal of Business, University of Chicago Press, vol. 79(2), pages 799-820, March.
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