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Futures Maturity and Hedging Effectiveness - The Case of Oil Futures

  • Ronald Ripple


    (Department of Economics, Macquarie University)

  • Imad Moosa

    (Department of Economics and Finance, La Trobe University)

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.

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File Function: First Version, 2005
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Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0513.

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Length: 20 pages.
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:mac:wpaper:0513
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