Futures Maturity and Hedging Effectiveness - The Case of Oil Futures

Ronald Ripple () and Imad Moosa
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Imad Moosa: Department of Economics and Finance, La Trobe University

No 513, Research Papers from Macquarie University, Department of Economics

Abstract: This paper examines the effect of the maturity of the futures contact used as the hedging instrument on the effectiveness of futures hedging. For this purpose, daily and monthly data on the WTI crude oil futures and spot prices are used to work out the hedge ratios and the measures of hedging effectiveness resulting from using the near-month contract and those resulting from the use of a more distant (six-month) contract. The results show that futures hedging is more effective when the near-month contract is used. They also reveal that hedge ratios are lower for near-month hedging. Some explanations are presented for these findings.

Pages: 20 pages.
Date: 2005-11
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (1)

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http://www.econ.mq.edu.au/research/2005/HedgingEffectiveness.pdf First Version, 2005 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:mac:wpaper:0513

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