Toggle Main Menu Toggle Search

Open Access padlockePrints

Optimal hedging ratios for wheat and barley at the LIFFE: A GARCH approach

Lookup NU author(s): Dr Philip Dawson, Dr Abigail Tiffin, Dr Benedict White


Full text for this publication is not currently held within this repository. Alternative links are provided below where available.


Over 100, 000 futures contracts for cereals are traded annually on the London International Financial Futures Exchange. The proportion of the spot position held as futures contracts the hedging ratio - is critical to traders and traditional estimates, using OLS, are constant over time. In this paper; we estimate time-varying hedging ratios for wheat and barley contracts using a multivariate generalised autoregressive conditional heteroscedasticity (GARCH) model. Results indicate that GARCH hedging ratios do change through time. Moreover; risk using the GARCH hedge is reduced significantly by around 4 per cent for wheat and 2 per cent for barley relative to the no hedge position, and significantly by around 0.2 per cent relative to the constant hedge. The optimal, expected utility-maximising, and the risk-minimising hedging ratios are equivalent.

Publication metadata

Author(s): White B; Tiffin AL; Dawson PJ

Publication type: Article

Publication status: Published

Journal: Journal of Agricultural Economics

Year: 2000

Volume: 51

Issue: 2

Pages: 147-161

ISSN (print): 021-857X

ISSN (electronic): 1477-9552

Publisher: Wiley-Blackwell Publishing Ltd.


DOI: 10.1111/j.1477-9552.2000.tb01220.x


Altmetrics provided by Altmetric