Time-varying hedge ratios are derived which account for the dynamic characteristics of prices in the soybean complex. A multivariate generalized autoregressive heteroskedastic (MGARCH) model, along with other conditional models, is used to specify the relevant covariance matrix. While the time-varying representations of the variance matrix are statistically appropriate, ex ante and ex post hedging effectiveness indicate that they provide minimal gain to hedging in terms of mean return and reduction in variance over a constant conditional procedure. Whether similar findings arise from other applications of GARCH models to optimal hedging is a question for further research.
|Original language||English (US)|
|Number of pages||8|
|State||Published - Dec 1995|
ASJC Scopus subject areas
- Economics and Econometrics