IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Evaluating the Hedging Potential of the Lean Hog Futures Contract

  • Mark W. Ditsch

    (Consolidated Grain & Barge Company)

  • Raymond M. Leuthold

    (University of Illinois at Urbana-Champaign)

Registered author(s):

    The lean hog futures contract is replacing the live hog futures contract at the Chicago Mercantile Exchange beginning with the February 1997 contract. The lean hog futures will be cash settled based on a broad-based lean hog price index, eliminating terminal markets from the price discovery process. Using this index over a twenty-month period as a proxy for the lean hog futures price, this paper compares the hedging effectiveness of the live hog futures contract to the hedging potential of the lean hog futures contract for cash live hogs as well as four cash meat cuts. Frozen pork bellies futures are also examined for the cash meats. Both long-term and short-term hedges are simulated, using the minimum-variance approach, which utilizes only unconditional information, and the Myers-Thompson approach that incorporates conditional information. The results show that the lean hog futures should perform better than either the live hog or the frozen pork bellies futures as a hedging instrument for Omaha cash hogs and cash loins. The strongest evidence of this is for the short-term hedging of cash hogs. For the other three meats, no futures contract demonstrated a clear hedging advantage.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://128.118.178.162/eps/fin/papers/9609/9609003.html
    Download Restriction: no

    File URL: http://128.118.178.162/eps/fin/papers/9609/9609003.ps.gz
    Download Restriction: no

    File URL: http://128.118.178.162/eps/fin/papers/9609/9609003.pdf
    Download Restriction: no

    Paper provided by EconWPA in its series Finance with number 9609003.

    as
    in new window

    Length: 23 pages
    Date of creation: 23 Sep 1996
    Date of revision:
    Handle: RePEc:wpa:wuwpfi:9609003
    Note: Type of Document - Word Perfect 6.1; prepared on PC; to print on HP Laser Jet 4; pages: 23. Office for Futures and Options Research (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 96-03. For a complete list of OFOR working papers see
    Contact details of provider: Web page: http://128.118.178.162

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Hayenga, Marvin L. & Jiang, B. & Kweon, J. H. & Lence, Sergio H., 1994. "Cross Hedging Wholesale Beef and Pork Products," Staff General Research Papers 11399, Iowa State University, Department of Economics.
    2. Hayenga, Marvin L. & DiPietre, Dennis D., 1982. "Cross-Hedging Wholesale Pork Products Using Live Hog Futures," Staff General Research Papers 11305, Iowa State University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9609003. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.