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The Economic Value of Minimum-Variance Hedges

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  • Sergio H. Lence

Abstract

The present article examines the potential economic gains from "better" minimum-variance hedge (MVH) estimates, focusing on the assumptions that yield MVHs consistent with expected-utility maximization. It is found that the economic value of "better" MVH estimates is negligible, and that optimal hedges are substantially different from MVHs when the usual MVH restrictions are relaxed. Among other things, findings suggest that the hedging research's recent emphasis on "better" MVHs has been a waste of resources. Investigating the consequences of relaxing the standard MVH assumptions seems to be much more important than recent literature contributions.

Suggested Citation

  • Sergio H. Lence, 1995. "The Economic Value of Minimum-Variance Hedges," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 353-364.
    • Handle: RePEc:oup:ajagec:v:77:y:1995:i:2:p:353-364.
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    File URL: http://hdl.handle.net/10.2307/1243545
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