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Article: Liquidity constraints and the hedging role of futures spreads

TitleLiquidity constraints and the hedging role of futures spreads
Authors
Issue Date2004
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, 2004, v. 24 n. 10, p. 909-921 How to Cite?
AbstractThis paper examines the behavior of the competitive firm under price uncertainty in general and the hedging role of futures spreads in particular. The firm has access to a commodity futures market where unbiased nearby and distant futures contracts are transacted. A liquidity constraint is imposed on the firm such that the firm is forced to prematurely close its distant futures position whenever the net interim loss due to its nearby and distant futures positions exceeds a threshold level. This paper shows that the liquidity constrained firm optimally opts for a long nearby futures position and a short distant futures position should the firm be prudent, thereby rendering the optimality of using futures spreads for hedging purposes. This paper further shows that the firm's production decision is adversely affected by the presence of the liquidity constraint. © 2004 Wiley Periodicals, Inc.
Persistent Identifierhttp://hdl.handle.net/10722/85647
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.accessioned2010-09-06T09:07:34Z-
dc.date.available2010-09-06T09:07:34Z-
dc.date.issued2004en_HK
dc.identifier.citationJournal Of Futures Markets, 2004, v. 24 n. 10, p. 909-921en_HK
dc.identifier.issn0270-7314en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85647-
dc.description.abstractThis paper examines the behavior of the competitive firm under price uncertainty in general and the hedging role of futures spreads in particular. The firm has access to a commodity futures market where unbiased nearby and distant futures contracts are transacted. A liquidity constraint is imposed on the firm such that the firm is forced to prematurely close its distant futures position whenever the net interim loss due to its nearby and distant futures positions exceeds a threshold level. This paper shows that the liquidity constrained firm optimally opts for a long nearby futures position and a short distant futures position should the firm be prudent, thereby rendering the optimality of using futures spreads for hedging purposes. This paper further shows that the firm's production decision is adversely affected by the presence of the liquidity constraint. © 2004 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.rightsThe Journal of Futures Markets. Copyright © John Wiley & Sons, Inc.en_HK
dc.titleLiquidity constraints and the hedging role of futures spreadsen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0270-7314&volume=24&spage=909&epage=921&date=2004&atitle=Liquidity+Constraints+and+the+Hedging+Role+of+Futures+Spreadsen_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.20121en_HK
dc.identifier.scopuseid_2-s2.0-4444351565en_HK
dc.identifier.hkuros102141en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-4444351565&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume24en_HK
dc.identifier.issue10en_HK
dc.identifier.spage909en_HK
dc.identifier.epage921en_HK
dc.identifier.isiWOS:000223320700001-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridWong, KP=7404759417en_HK

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