Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting

Lee Brittain, Philip Garcia and Scott Irwin

No 53038, 2009 Conference, April 20-21, 2009, St. Louis, Missouri from NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: The paper examines empirical returns from holding thirty- and ninety-day call and put positions, and the forecasting performance of implied volatility in the live and feeder cattle options markets. In both markets, implied volatility is an upwardly biased and inefficient predictor of realized volatility, with bias most prominent in live cattle. While significant returns exist holding several market positions, most strategies are strongly affected by a drift in futures market prices. However, the returns from selling live cattle puts are persistent, and evidence from straddle returns identifies that the market overprices volatility. This overpricing is consistent with a short-term risk premium whose effect is magnified by extreme changes in market conditions.

Keywords: Agribusiness; Agricultural and Food Policy; Agricultural Finance; Community/Rural/Urban Development; Farm Management; Financial Economics; Livestock Production/Industries; Marketing; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 26
Date: 2009-04
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https://ageconsearch.umn.edu/record/53038/files/confp04-09.pdf (application/pdf)

Related works:
Journal Article: Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccc09:53038

DOI: 10.22004/ag.econ.53038

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