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Article: Production, liquidity, and futures price dynamics

TitleProduction, liquidity, and futures price dynamics
Authors
Issue Date2008
PublisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/
Citation
Journal Of Futures Markets, 2008, v. 28 n. 8, p. 749-762 How to Cite?
AbstractThis study examines the optimal design of a futures hedge program for the competitive firm under output price uncertainty. All futures contracts are unbiased and marked to market in that they require interim cash settlement of gains and losses. The futures price dynamics follows a first-order autoregression with a random walk serving as a special case. The firm's futures hedge program is constituted of an endogenous provision for premature termination, which depends on how the futures prices are autocorrelated. Succinctly, the firm voluntarily commits to premature liquidation of its futures position on which the interim loss incurred exceeds a predetermined threshold level if the futures prices are positively autocorrelated. In this case, the liquidity constrained firm optimally opts for an over-hedge if its preferences exhibit either constant or increasing absolute risk aversion. If the futures prices are uncorrelated or negatively autocorrelated, the firm prefers to be liquidity unconstrained and thus adopts a full-hedge to completely eliminate the output price risk. © 2008 Wiley Periodicals, Inc.
Persistent Identifierhttp://hdl.handle.net/10722/60149
ISSN
2015 Impact Factor: 0.698
2015 SCImago Journal Rankings: 0.520
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorWong, KPen_HK
dc.date.accessioned2010-05-31T04:04:48Z-
dc.date.available2010-05-31T04:04:48Z-
dc.date.issued2008en_HK
dc.identifier.citationJournal Of Futures Markets, 2008, v. 28 n. 8, p. 749-762en_HK
dc.identifier.issn0270-7314en_HK
dc.identifier.urihttp://hdl.handle.net/10722/60149-
dc.description.abstractThis study examines the optimal design of a futures hedge program for the competitive firm under output price uncertainty. All futures contracts are unbiased and marked to market in that they require interim cash settlement of gains and losses. The futures price dynamics follows a first-order autoregression with a random walk serving as a special case. The firm's futures hedge program is constituted of an endogenous provision for premature termination, which depends on how the futures prices are autocorrelated. Succinctly, the firm voluntarily commits to premature liquidation of its futures position on which the interim loss incurred exceeds a predetermined threshold level if the futures prices are positively autocorrelated. In this case, the liquidity constrained firm optimally opts for an over-hedge if its preferences exhibit either constant or increasing absolute risk aversion. If the futures prices are uncorrelated or negatively autocorrelated, the firm prefers to be liquidity unconstrained and thus adopts a full-hedge to completely eliminate the output price risk. © 2008 Wiley Periodicals, Inc.en_HK
dc.languageengen_HK
dc.publisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/en_HK
dc.relation.ispartofJournal of Futures Marketsen_HK
dc.titleProduction, liquidity, and futures price dynamicsen_HK
dc.typeArticleen_HK
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hken_HK
dc.identifier.authorityWong, KP=rp01112en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1002/fut.20314en_HK
dc.identifier.scopuseid_2-s2.0-48949120022en_HK
dc.identifier.hkuros143687en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-48949120022&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume28en_HK
dc.identifier.issue8en_HK
dc.identifier.spage749en_HK
dc.identifier.epage762en_HK
dc.identifier.isiWOS:000257082900002-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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