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Effective Basemetal Hedging: The Optimal Hedge Ratio and Hedging Horizon
Marquette University, 1250 W. Wisconsin Ave., Milwaukee, WI 53233, USA
MillerCoors LLC, 250 South Wacker Drive, Chicago, IL 60606, USA
* Author to whom correspondence should be addressed.
Published: 31 December 2008
Abstract: This study investigates optimal hedge ratios in all base metal markets. Using recent hedging computation techniques, we find that 1) the short-run optimal hedging ratio is increasing in hedging horizon, 2) that the long-term horizon limit to the optimal hedging ratio is not converging to one but is slightly higher for most of these markets, and 3) that hedging effectiveness is also increasing in hedging horizon. When hedging with futures in these markets, one should hedge long-term at about 6 to 8 weeks with a slightly greater than one hedge ratio. These results are of interest to many purchasing departments and other commodity hedgers.
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MDPI and ACS Style
Dewally, M.; Marriott, L. Effective Basemetal Hedging: The Optimal Hedge Ratio and Hedging Horizon. J. Risk Financial Manag. 2008, 1, 41-76.
Dewally M, Marriott L. Effective Basemetal Hedging: The Optimal Hedge Ratio and Hedging Horizon. Journal of Risk and Financial Management. 2008; 1(1):41-76.
Dewally, Michaël; Marriott, Luke. 2008. "Effective Basemetal Hedging: The Optimal Hedge Ratio and Hedging Horizon." J. Risk Financial Manag. 1, no. 1: 41-76.