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A Behavioural Approach Towards Futures Contract Usage

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  • Joost M.E. Pennings
  • Raymond M. Leuthold

Abstract

We propose a behavioural decision‐making model to investigate what factors, observable as well as unobservable, owner‐managers consider regarding futures contract usage. The conceptual model consists of two phases, reflecting the two‐stage decision structure of manager's use of futures. In the first phase owner‐managers consider whether futures are within the market choice set for the enterprise. In the second phase the owner‐manager decides whether or not to initiate a futures position when confronted with a concrete choice situation. In both phases owner‐manager’s beliefs and perceptions play an important role. The proposed model is tested on a data set of Dutch farmers, based on computer‐assisted personal interviews. Because we incorporate latent variables (e.g., perceptions and beliefs) in both phases, we propose an estimation procedure that takes the measurement error of these latent variables explicitly into account. The implications of the behavioural decision‐making model for futures contract design are derived.

Suggested Citation

  • Joost M.E. Pennings & Raymond M. Leuthold, 2001. "A Behavioural Approach Towards Futures Contract Usage," Australian Economic Papers, Wiley Blackwell, vol. 40(4), pages 461-478, December.
  • Handle: RePEc:bla:ausecp:v:40:y:2001:i:4:p:461-478
    DOI: 10.1111/1467-8454.00137
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    Cited by:

    1. Jackson, Elizabeth & Quaddus, Mohammad & Islam, Nazrul & Stanton, John, 2007. "PR - Behavioural Factors Affecting The Adoption Of Forward Contracts By Australian Wool Producers," 16th Congress, Cork, Ireland, July 15-20, 2007 345384, International Farm Management Association.

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