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Futures Maturity and Hedging Effectiveness - The Case of Oil Futures

Author

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  • Ronald Ripple

    () (Department of Economics, Macquarie University)

  • Imad Moosa

    (Department of Economics and Finance, La Trobe University)

Abstract

This paper examines the effect of the maturity of the futures contact used as the hedging instrument on the effectiveness of futures hedging. For this purpose, daily and monthly data on the WTI crude oil futures and spot prices are used to work out the hedge ratios and the measures of hedging effectiveness resulting from using the near-month contract and those resulting from the use of a more distant (six-month) contract. The results show that futures hedging is more effective when the near-month contract is used. They also reveal that hedge ratios are lower for near-month hedging. Some explanations are presented for these findings.

Suggested Citation

  • Ronald Ripple & Imad Moosa, 2005. "Futures Maturity and Hedging Effectiveness - The Case of Oil Futures," Research Papers 0513, Macquarie University, Department of Economics.
  • Handle: RePEc:mac:wpaper:0513
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    File URL: http://www.econ.mq.edu.au/research/2005/HedgingEffectiveness.pdf
    File Function: First Version, 2005
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    Cited by:

    1. Guglielmo Maria Caporale & Davide Ciferri & Alessandro Girardi, 2014. "Time-Varying Spot and Futures Oil Price Dynamics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(1), pages 78-97, February.

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