Generalized optimal hedge ratio estimation

A generalized approach to estimating optimal hedge ratios on futures markets is developed. The generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation. In an application...

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Bibliographic Details
Published in:American journal of agricultural economics 1989-11, Vol.71 (4), p.858-868
Main Authors: Myers, Robert J., Thompson, Stanley R.
Format: Article
Language:English
Subjects:
Agricultural market
Agricultural prices
ANALISIS ESTADISTICO
ANALYSE STATISTIQUE
BLE
COMERCIO
COMMERCE
Commodities
Covariance
Covariance matrices
ESTADISTICA
ESTADOS UNIDOS DE AMERICA
Estimation methods
Estimators
ETATS-UNIS
Futures markets
hedge ratio estimation
Hedging
MARCHE A TERME
MODELE
MODELOS
OPERACIONES A PLAZO
PRECIOS
Price changes
Price levels
PRIX
Ratios
SOJA
Soybeans
STATISTIQUE
time-series econometrics
TRIGO
ZEA MAYS
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Summary:A generalized approach to estimating optimal hedge ratios on futures markets is developed. The generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation. In an application to storage hedging of corn, soybeans, and wheat, it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates.
ISSN:0002-9092
1467-8276
DOI:10.2307/1242663