Short-run deviations and time-varying hedge ratios: Evidence from agricultural futures markets

2009 ◽  
Vol 18 (1-2) ◽  
pp. 58-65 ◽  
Author(s):  
Taufiq Choudhry
Keyword(s):  
Futures Markets ◽  
Time Varying ◽  
Hedge Ratios ◽  
Agricultural Futures ◽  
Short Run

Market efficiency in Indian soybean futures markets

2014 ◽  
Vol 9 (4) ◽  
pp. 520-534 ◽  
Author(s):  
Thiagu Ranganathan ◽  
Usha Ananthakumar
Keyword(s):  
Market Efficiency ◽  
Risk Premium ◽  
Futures Markets ◽  
Structural Breaks ◽  
Time Varying ◽  
Content Type ◽  
Futures Contract ◽  
Long Run ◽  
Short Run ◽  
Commodity Derivatives

Purpose – The National commodity exchanges were established in India in the year 2003-2004 to perform the functions of price discovery and price risk management in the economy. The derivatives market can perform these functions properly only if they are efficient and unbiased. So, there is a need to properly evaluate these aspects of the Indian commodity derivatives market. The purpose of this paper is to test the market efficiency and unbiasedness of the Indian soybean futures markets. Design/methodology/approach – The paper uses cointegration and a QARCH-M-ECM-based framework to test the market efficiency and unbiasedness in the soybean futures contract traded in the National Commodity Derivatives Exchange (NCDEX). The cointegration test is used to test the long-run unbiasedness and market efficiency of the contract, while the QARCH-M-ECM model is used to test the short-run market efficiency and unbiasedness of the contract by allowing for a time-varying risk premium. The price data is also tested for presence of structural breaks using a Zivot and Andrews unit root test. Findings – The soybean contract is unbiased in the long run, but there are short-run market inefficiencies and also a presence of a time-varying risk premium. Though the weak form of market efficiency is rejected in the short run, the semi-strong market efficiency is not rejected based on the forecasts. Originality/value – This is the first paper to consider time-varying risk premium while performing the tests of market efficiency and unbiasedness on Indian commodity markets.

scholarly journals Empirical Evidence on Time-Varying Hedging Effectiveness of Emissions Allowances under Departures from the Cost-of-Carry Theory

2013 ◽  
Vol 2013 ◽  
pp. 1-8 ◽  
Author(s):  
Kai Chang
Keyword(s):  
Futures Market ◽  
Time Varying ◽  
Conditional Volatility ◽  
Conditional Correlation ◽  
Spot Prices ◽  
Market Participants ◽  
Hedging Effectiveness ◽  
Hedge Ratios ◽  
Cost Of Carry ◽  
The Cost

Under departures from the cost-of-carry theory, traded spot prices and conditional volatility disturbed from futures market have significant impacts on futures price of emissions allowances, and then we propose time-varying hedge ratios and hedging effectiveness estimation using ECM-GARCH model. Our empirical results show that conditional variance, conditional covariance, and their correlation between between spot and futures prices exhibit time-varying trends. Conditional volatility of spot prices, conditional volatility disturbed from futures market, and conditional correlation of market noises implied from spot and futures markets have significant effects on time-varying hedge ratios and hedging effectiveness. In the immature emissions allowances market, market participants optimize portfolio sizes between spot and futures assets using historical market information and then achieve higher risk reduction of assets portfolio revenues; accordingly, we can obtain better hedging effectiveness through time-varying hedge ratios with departures from the cost-of-carry theory.

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