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The risk management effectiveness of multivariate hedging models in the U.S. soy complex

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  • Robert A. Collins

Abstract

Several authors have proposed sophisticated multivariate hedging strategies which use portfolio theory and complex econometric techniques. Practical application of these techniques requires using historical data to make decisions about future hedging portfolios. This paper tests to see if there is enough stationarity in the data for these models to actually provide better hedging strategies in practice. For the soy complex the results are clear. No statistically significant improvement over naive equal and opposite hedges was found for any of the multivariate hedging models. So far, there is no known evidence that any of these methods perform reliably in practice. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:189–204, 2000

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  • Robert A. Collins, 2000. "The risk management effectiveness of multivariate hedging models in the U.S. soy complex," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(2), pages 189-204, February.
    • Handle: RePEc:wly:jfutmk:v:20:y:2000:i:2:p:189-204
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    Cited by:

    1. Fei, Chengcheng & Vedenov, Dmitry & Stevens, Reid B. & Anderson, David, 2021. "Single-Commodity vs. Joint Hedging in Cattle Feeding Cycle: Is Joint Hedging Always Essential?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 46(3), September.
    2. Panos Kouvelis & Danko Turcic, 2021. "Supporting Operations with Financial Hedging: Cash Hedging Vs. Cost Hedging in an Automotive Industry," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 738-749, March.
    3. Marco Lau & Yongyang Su & Na Tan & Zhe Zhang, 2014. "Hedging China’s energy oil market risks," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 99-112, June.
    4. Corbet, Shaen & Hou, Yang (Greg) & Hu, Yang & Oxley, Les, 2022. "The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets," Research in International Business and Finance, Elsevier, vol. 59(C).
    5. Kim, Myeong Jun & Park, Sung Y., 2016. "Optimal conditional hedge ratio: A simple shrinkage estimation approach," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 139-156.
    6. Goswami, Alankrita & Karali, Berna & Adjemian, Michael K., 2023. "Hedging with futures during nonconvergence in commodity markets," Journal of Commodity Markets, Elsevier, vol. 32(C).
    7. Qianjie Geng & Yudong Wang, 2021. "Futures Hedging in CSI 300 Markets: A Comparison Between Minimum-Variance and Maximum-Utility Frameworks," Computational Economics, Springer;Society for Computational Economics, vol. 57(2), pages 719-742, February.
    8. Gurmeet Singh, 2017. "Estimating Optimal Hedge Ratio and Hedging Effectiveness in the NSE Index Futures," Jindal Journal of Business Research, , vol. 6(2), pages 108-131, December.
    9. Yan Hu & Jian Ni, 2024. "A deep learning‐based financial hedging approach for the effective management of commodity risks," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(6), pages 879-900, June.

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