IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v6y1993i4p935-57.html
   My bibliography  Save this article

Production Flexibility, Stochastic Separation, Hedging, and Futures Prices

Author

Listed:
  • Kamara, Avraham

Abstract

We study a dynamic model where uncertainty about interim output adjustments causes producers to face price, cost and output uncertainty. Stochastically separable production decisions are independent of the producer's risk preferences and expectations and are based on the prevailing futures price as a certain output price. Conditions under which futures contracts achieve stochastic separation are established. Optimal hedging and maturity structure of futures contracts, equilibrium futures prices, and the effects of futures trading on output are studied. The systematic risk premium depends on the product of the futures beta and the covariance of the market return with production revenues. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Kamara, Avraham, 1993. "Production Flexibility, Stochastic Separation, Hedging, and Futures Prices," The Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 935-957.
  • Handle: RePEc:oup:rfinst:v:6:y:1993:i:4:p:935-57
    as

    Download full text from publisher

    File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jane Black & Ian Tonks, 2000. "Time series volatility of commodity futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(2), pages 127-144, February.
    2. Christos Floros, 2007. "Price and Open Interest in Greek Stock Index Futures Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 6(2), pages 191-202, May.
    3. Jian Yang & R. Brian Balyeat & David J. Leatham, 2005. "Futures Trading Activity and Commodity Cash Price Volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1‐2), pages 297-323, January.
    4. Karthika P. DEVAN & Johney JOHNSON, 2021. "A pragmatic evaluation of the interconnection between currency futures return volatility, open interest and volume," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(626), S), pages 289-296, Spring.
    5. Lioui, Abraham & Eldor, Rafael, 1998. "Optimal spreading when spreading is optimal," Journal of Economic Dynamics and Control, Elsevier, vol. 23(2), pages 277-301, September.
    6. Shylaja P & Anver Sadath C, 2016. "Futures Trading: Informational Content of Open Interest and Trading Volume on Futures Price," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 3(2), pages 156-162.
    7. Meenakshi Malhotra & Dinesh Kumar Sharma, 2016. "Volatility Dynamics in Oil and Oilseeds Spot and Futures Market in India," Vikalpa: The Journal for Decision Makers, , vol. 41(2), pages 132-148, June.
    8. Lioui, Abraham, 1999. "Spreading currency forwards: why and how?," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 305-317, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:6:y:1993:i:4:p:935-57. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.