The Economic Value of Minimum-Variance Hedges
The present article examines the potential economic gains from "better" minimum-variance hedge (MVH) estimates, focusing on the assumptions that yield MVHs consistent with expected-utility maximization. It is found that the economic value of "better" MVH estimates is negligible, and that optimal hedges are substantially different from MVHs when the usual MVH restrictions are relaxed. Among other things, findings suggest that the hedging research's recent emphasis on "better" MVHs has been a waste of resources. Investigating the consequences of relaxing the standard MVH assumptions seems to be much more important than recent literature contributions.
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|Date of creation:||01 May 1995|
|Publication status:||Published in American Journal of Agricultural Economics, May 1995, vol. 77 no. 2, pp. 353-364|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
Phone: +1 515.294.6741
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Web page: http://www.econ.iastate.edu
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