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Timing a Hedge Decision: The Development of a Composite Technical Indicator for White Maize

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  • Susari Geldenhuys, Frans Dreyer and Chris van Heerden

Abstract

South African white maize is considered to be significantly more volatile than any other agricultural product traded on the South African Futures Exchange (SAFEX). This accentuates the need to effectively manage price risk, by means of hedging, to ensure a more profitable and sustainable maize production sector (Geyser, 2013: 39; Jordaan et al., 2007: 320). This paper attempts to address this challenge by making use of technical analysis, focusing on the development of a practical and applicable composite technical indicator with the purpose of improving the timing of price risk management decisions identified by individual technical indicators. This substantiated the compilation of a composite indicator that takes both leading and lagging indicators into account to more accurately identify hedging opportunities. The results validated the applicability of such a composite indicator, as the composite indicator outperformed the individual technical indicators in the white maize market over the period under investigation.

Suggested Citation

  • Susari Geldenhuys, Frans Dreyer and Chris van Heerden, 2014. "Timing a Hedge Decision: The Development of a Composite Technical Indicator for White Maize," Working Papers 423, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:423
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    File URL: https://www.econrsa.org/node/862
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    Keywords

    Agricultural commodity market; efficient market; composite indicator; hedging; technical analysis; trading market; trending market; South Africa; white maize;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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