Price Uncertainty and Optimal Hedging in the Agricultural Market
The increased volatility of the agricultural prices has detrimental effects on the economic welfare and raises concerns regarding poverty and malnutrition at a global level. Financial risk management can be an efficient solution for limiting the effects of international agricultural price volatility...
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| Format: | Article |
| Language: | English |
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Babes-Bolyai University, Cluj-Napoca
2014-06-01
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| Series: | Transylvanian Review of Administrative Sciences |
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| Online Access: | https://rtsa.ro/tras/index.php/tras/article/view/19 |
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| author | Nicolae ISTUDOR Dan ARMEANU Florinel Marian SGARDEA Mihai-Cristian DINICĂ |
| author_facet | Nicolae ISTUDOR Dan ARMEANU Florinel Marian SGARDEA Mihai-Cristian DINICĂ |
| author_sort | Nicolae ISTUDOR |
| collection | DOAJ |
| description | The increased volatility of the agricultural prices has detrimental effects on the economic welfare and raises concerns regarding poverty and malnutrition at a global level. Financial risk management can be an efficient solution for limiting the effects of international agricultural price volatility. The paper analyzes the behavior of the U.S. wheat and corn prices, emphasizing their highly volatile and unpredictable nature. Given the existence of the basis risk, the estimation of the optimal hedge ratio is needed in order to provide an efficient hedging strategy against price risks. The role of public authorities in this context can consist in promoting education in the fields of hedging and understanding the agricultural price volatility risk. We estimate static and time varying optimal hedge ratios for wheat and corn through several methods. Based on the out of sample hedging effectiveness given by the variance reduction, the methods are compared and the results show that the time varying hedge ratios estimated through rolling window OLS and GARCH methods outperform the static counterparts. |
| format | Article |
| id | doaj-art-fd1db5b51a2249208e61e9f91d65b29f |
| institution | Matheson Library |
| issn | 1842-2845 |
| language | English |
| publishDate | 2014-06-01 |
| publisher | Babes-Bolyai University, Cluj-Napoca |
| record_format | Article |
| series | Transylvanian Review of Administrative Sciences |
| spelling | doaj-art-fd1db5b51a2249208e61e9f91d65b29f2025-07-03T07:31:27ZengBabes-Bolyai University, Cluj-NapocaTransylvanian Review of Administrative Sciences1842-28452014-06-011042324835Price Uncertainty and Optimal Hedging in the Agricultural MarketNicolae ISTUDOR0Dan ARMEANU1Florinel Marian SGARDEA2Mihai-Cristian DINICĂ3Professor, Department of Agrifood and Environmental Economics, Agrifood and Environmental Economics Faculty, The Bucharest Academy of Economic Studies, Bucharest, RomaniaProfessor, Department of Finance, Faculty of Finance, Insurance, Banking and Stock Exchange, The Bucharest Academy of Economic Studies, Bucharest, RomaniaProfessor, Department of Accounting and Audit, Faculty of Accounting and Management Information Systems, The Bucharest Academy of Economic Studies, Bucharest, RomaniaPhD, Department, of Finance, Faculty of Finance, Insurance, Banking and Stock Exchange, The Bucharest Academy of Economic Studies, Bucharest, RomaniaThe increased volatility of the agricultural prices has detrimental effects on the economic welfare and raises concerns regarding poverty and malnutrition at a global level. Financial risk management can be an efficient solution for limiting the effects of international agricultural price volatility. The paper analyzes the behavior of the U.S. wheat and corn prices, emphasizing their highly volatile and unpredictable nature. Given the existence of the basis risk, the estimation of the optimal hedge ratio is needed in order to provide an efficient hedging strategy against price risks. The role of public authorities in this context can consist in promoting education in the fields of hedging and understanding the agricultural price volatility risk. We estimate static and time varying optimal hedge ratios for wheat and corn through several methods. Based on the out of sample hedging effectiveness given by the variance reduction, the methods are compared and the results show that the time varying hedge ratios estimated through rolling window OLS and GARCH methods outperform the static counterparts.https://rtsa.ro/tras/index.php/tras/article/view/19price uncertaintyhedgingagricultural commodity pricesfutures pricevolatility. |
| spellingShingle | Nicolae ISTUDOR Dan ARMEANU Florinel Marian SGARDEA Mihai-Cristian DINICĂ Price Uncertainty and Optimal Hedging in the Agricultural Market Transylvanian Review of Administrative Sciences price uncertainty hedging agricultural commodity prices futures price volatility. |
| title | Price Uncertainty and Optimal Hedging in the Agricultural Market |
| title_full | Price Uncertainty and Optimal Hedging in the Agricultural Market |
| title_fullStr | Price Uncertainty and Optimal Hedging in the Agricultural Market |
| title_full_unstemmed | Price Uncertainty and Optimal Hedging in the Agricultural Market |
| title_short | Price Uncertainty and Optimal Hedging in the Agricultural Market |
| title_sort | price uncertainty and optimal hedging in the agricultural market |
| topic | price uncertainty hedging agricultural commodity prices futures price volatility. |
| url | https://rtsa.ro/tras/index.php/tras/article/view/19 |
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