EconPapers    
Economics at your fingertips  
 

Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge

Richard Baillie () and Robert Myers ()

Journal of Applied Econometrics, 1991, vol. 6, issue 2, 109-24

Abstract: Six different commodities are examined using daily data over two futures contract periods. Cash and futures prices for all six commodities are found to be well described as martingales with near-integrated GARCH innovations. Bivariate GARCH models of cash and futures prices are estimated for the same six commodities. The optimal hedge ratio (OHR) is then calculated as a ratio of the conditional covariance between cash and futures to the conditional variance of futures. The estimated OHRs reveal that the standard assumption of a time-invariant OHR is inappropriate. For each commodity the estimated OHR path appears non-stationary, which has important implications for hedging strategies. Copyright 1991 by John Wiley & Sons, Ltd.

Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (227) Track citations by RSS feed

Downloads: (external link)
http://links.jstor.org/sici?sici=0883-7252%2819910 ... 0.CO%3B2-X&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

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:jae:japmet:v:6:y:1991:i:2:p:109-24

Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252

Access Statistics for this article

Journal of Applied Econometrics is currently edited by M. Hashem Pesaran

More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().

 
Page updated 2019-10-13
Handle: RePEc:jae:japmet:v:6:y:1991:i:2:p:109-24