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Generalized Optimal Hedge Ratio Estimation
Author(s) -
Myers Robert J.,
Thompson Stanley R.
Publication year - 1989
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242663
Subject(s) - futures contract , econometrics , hedge , regression , simple (philosophy) , estimation , economics , regression analysis , simple linear regression , mathematics , statistics , financial economics , ecology , philosophy , biology , management , epistemology
A generalized approach to estimating optimal hedge ratios on futures markets is developed. The generalized approach is not difficult to apply and provides a framework for evaluating the appropriateness of conventional simple regression approaches to optimal hedge ratio estimation. In an application to storage hedging of corn, soybeans, and wheat, it is found that simple regression using price levels or returns leads to errors in optimal hedge ratio estimation but that simple regression using price changes provides reasonably accurate estimates.