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Comparative analysis of futures contract cross-hedging effectiveness for soybean: models and insights

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  • M. C. Erasmus
  • J. M. Geyser

Abstract

The purpose of this research is to investigate the use of cross-hedging in the South African soybean market, by using the JSE BEAN contract as a cross-hedge instrument for the JSE SOYA contract. The research study involves a detailed assessment of the data, which includes the use of stationarity tests such as the Phillips-Perron and Augmented Dickey-Fuller, as well as the Johansen co-integration approach to analyse long-term relationships between the variables. To evaluate the efficiency of cross-hedging strategies, three distinct hedging models are used: the ordinary least squares (OLS) model, error correction model (ECM) and EC-GARCH. The results demonstrate that these models produce significant hedge ratios. Through back-testing and the application of hedging strategies, it is determined that the JSE BEAN contract holds the potential to serve as a cross-hedge for the JSE SOYA contract in the South African soybean market. This study provides useful information for market participants and model selection in the context of cross-hedging.

Suggested Citation

  • M. C. Erasmus & J. M. Geyser, 2024. "Comparative analysis of futures contract cross-hedging effectiveness for soybean: models and insights," Agrekon, Taylor & Francis Journals, vol. 63(4), pages 319-336, October.
    • Handle: RePEc:taf:ragrxx:v:63:y:2024:i:4:p:319-336
    DOI: 10.1080/03031853.2024.2401787
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