Please use this identifier to cite or link to this item: http://hdl.handle.net/2381/38995
Title: Hedging and Speculative Pressures and the Transition of the Spot-Futures Relationship in Energy and Metal Markets
Authors: Park, Jin Suk
Shi, Yukun
First Published: 23-Dec-2016
Publisher: Elsevier
Citation: International Review of Financial Analysis, 2016
Abstract: This paper examines the impact of hedging and speculative pressures on the transition of the spotfutures relationship in metal and energy markets. We build a Markov regime switching (MRS) model where hedging and speculative pressures affect the transition probabilities between a stronger and weaker spot-futures relationship. It is found that hedging pressure increases the likelihood of transition, i.e. destabilises the existing spot-futures relationship, while speculative pressure reduces it, i.e. stabilises the relationship, in the copper, crude oil and natural gas markets, but this effect is relatively weak in the silver and heating oil markets. We also examine whether these findings generate practical benefits by testing the hedging effectiveness of the minimum variance hedge ratios (MVH) derived from the MRS models with hedging and speculative pressures. A relatively strong reduction of the portfolio variance, hedger’s utility and value at risk (VaR) is observed in the energy markets.
DOI Link: 10.1016/j.irfa.2016.12.001
ISSN: 1057-5219
Links: http://www.sciencedirect.com/science/article/pii/S1057521916301867
http://hdl.handle.net/2381/38995
Embargo on file until: 23-Jun-2018
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Creative Commons “Attribution Non-Commercial No Derivatives” licence CC BY-NC-ND, further details of which can be found via the following link: http://creativecommons.org/licenses/by-nc-nd/4.0/ Archived with reference to SHERPA/RoMEO and publisher website.
Description: JEL classification: G13
The file associated with this record is under embargo until 18 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.
Appears in Collections:Published Articles, School of Management

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