Hedgers’ Participation in Futures Markets Under Varying Price Regimes

Daniel J. Sanders and Timothy Baker ()

No 124872, 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington from Agricultural and Applied Economics Association

Abstract: Futures markets provide an important outlet for commercial traders to hedge their price risk; in turn, hedgers‟ connections to the physical market provide a foundation of market fundamentals to the futures markets. Participation by hedgers in the futures markets is important for both entities, and is subject to many factors. In this paper, we sought to study potential changes in hedgers‟ behavior by observing the changing relationship between their futures market positions and their physical grain stocks. This changing relationship was tested using a smooth-transitioning structural model that used data from the wheat contracts on the Chicago and Kansas City exchanges. In Chicago, we find stable levels of incremental hedging that significantly decline when futures price volatility is high and when delivery basis weakens significantly. Additionally, hedging participation has declined in recent years, coinciding with the commodity price boom. In the Kansas City contracts, in contrast, hedging behavior increased with high futures prices and, surprisingly, with increased futures price volatility. Overall, we were able to observe ostensible changes in hedgers‟ market participation under changing market conditions.

Keywords: Research Methods/Statistical Methods; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 22
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/124872/files/Sanders.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea12:124872

DOI: 10.22004/ag.econ.124872

Access Statistics for this paper

More papers in 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington from Agricultural and Applied Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().