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Futures market hedging efficiency in a new futures exchange: Effects of trade partner diversification
Author(s) -
Oglend Atle,
Straume HansMartin
Publication year - 2020
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/fut.22088
Subject(s) - futures contract , diversification (marketing strategy) , forward market , futures market , transaction cost , financial economics , database transaction , economics , spot contract , business , microeconomics , marketing , computer science , programming language
This paper uses transaction data to examine hedging efficiency in a new futures exchange; the Fish Pool salmon futures exchange in Norway. The paper utilizes data on firm‐level exporter/importer transaction prices to quantify firm‐level futures hedging efficiency. This allows us to address heterogeneity in hedging efficiency and basis risk at the firm level. The main result of this paper shows that larger firms with greater trade partner diversification have lower basis risk. Such firms align their internal transaction price closer to the common spot price in the market, which encourages greater futures market participation. Results are discussed in light of recent declines in participation in the salmon futures exchange.