Premium
Hedging efficiency: A futures exchange management approach
Author(s) -
Pennings Joost M.E.,
Meulenberg Matthew T.G.
Publication year - 1997
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/(sici)1096-9934(199708)17:5<599::aid-fut5>3.0.co;2-a
Subject(s) - futures contract , citation , library science , economics , computer science , financial economics
In studies of futures markets muchattentionhasbeenpaidtothehedgingeffectiveness of futures contracts because it is an important determinantin explaining the success of futures contracts [Johnston, Tashjian, andMcConnell (1989)]. The authors who have proposed measures of thiseffectiveness include Chang and Fang (1990), Ederington(1979),Gjerde(1987), Hsin, Kuo, and Lee (1994), Lasser (1987), and Nelson and Col-lins (1985). These measures all try to determine to what extent hedgersare able to reduce cash price risk by using futures contracts. In thesestudies hedging effectiveness refers to returns on portfolios. A particularfutures contract can have different values with respect to hedging effec-tiveness, depending on which measure is used and on the hedger utilityfunction. Futures contracts, themselves, introduce risks for hedgers.Therefore, the extent to which a futures contract offers a reduction inoverall risk is an important criterion for the management of the futures