Document Type

Article

Language

eng

Publication Date

12-3-2008

Publisher

MDPI

Source Publication

Journal of Risk and Financial Management

Source ISSN

1911-8066

Abstract

This study investigates optimal hedge ratios in all base metal markets. Using recent hedging computation techniques, we find that 1) the short-run optimal hedging ratio is increasing in hedging horizon, 2) that the long-term horizon limit to the optimal hedging ratio is not converging to one but is slightly higher for most of these markets, and 3) that hedging effectiveness is also increasing in hedging horizon. When hedging with futures in these markets, one should hedge long-term at about 6 to 8 weeks with a slightly greater than one hedge ratio. These results are of interest to many purchasing departments and other commodity hedgers.

Comments

Published version. Journal of Risk and Financial Management, Vol. 1, No. 1 (2008): 41-76. DOI. © 2008 MDPI. Used with permission.

Creative Commons License

Creative Commons Attribution 3.0 License
This work is licensed under a Creative Commons Attribution 3.0 License.

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