Hedging effectiveness of European wheat futures markets: An application of multivariate GARCH models
2017
Revoredo-Giha, Cesar | Zuppiroli, Marco
The instability of commodity prices and the hypothesis that speculative behaviour wasone of its causes has brought renewed interest in futures markets. In this paper, thehedging effectiveness of European and US wheat futures markets were studied to testwhether they were affected by the high price instability after 2007. In particular, thefocus of the paper is to test of whether the increasing presence of financialization ofcommodity trading in futures markets mentioned in the literature have made themdivorced from the physical markets. A multivariate GARCH model was applied tocompute optimal hedging ratios. Important evidence was found of an improvement,after 2007, in the effectiveness of hedging with the European futures.
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