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Potential demand for hedging by Australian wheat producers[Note 1. While accepting responsibility for any remaining errors, the authors ...]
Author(s) -
Simons Phil,
Rambaldi Alicia
Publication year - 1997
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.00008
Subject(s) - futures contract , risk aversion (psychology) , economics , futures market , transaction cost , expected utility hypothesis , price risk , econometrics , microeconomics , financial economics
The potential for hedging Australian wheat with the new Sydney Futures Exchange wheat contract is examined using a theoretical hedging model parametised from previous studies. The optimal hedging ratio for an ‘average’ wheat farmer was found to be zero under reasonable assumptions about transaction costs and based on previously published measures of risk aversion. The estimated optimal hedging ratios were found by simulation to be quite sensitive to assumptions about the degree of risk aversion. If farmers are significantly more risk averse than is currently believed, then there is likely to be an active interest in the new futures market.