A Comparison of Hedging Strategies and Effectiveness for Storable and Non-Storable Commodities

Janelle Mann and Peter Sephton

No 285325, 2010 Conference, April 19-20, 2010, St. Louis, Missouri from NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: This research questions whether the hedging potential of a futures market differs between storable and non-storable commodities. The relationship between asset storability and hedging effectiveness was examined using five years of daily cash and futures data for eight commodities. Three hedge ratios were estimated for each commodity – the naive (1:1) hedge ratio, the OLS hedge ratio, and either the BEKK-GARCH hedge ratios or the ECM-GARCH hedge ratios depending on whether or not the cash and futures price series were cointegrated. Results indicate that the futures market for livestock performed poorly in its hedging function compared to the futures market for other commodities; however, there was insufficient evidence to conclude that this holds for all non-storable commodities.

Keywords: Marketing (search for similar items in EconPapers)
Date: 2010-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccc10:285325

DOI: 10.22004/ag.econ.285325

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