Market Efficiency and Optimal Hedging Strategy for the US Ethanol Market

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Auteurs
Date

2018

Discipline
Type de document
Périmètre
Langue
Identifiants
Source

HAL SHS (Sciences de l’Homme et de la Société)

Collection

Archives ouvertes

Organisation

Centre pour la communication scientifique directe

Licence

info:eu-repo/semantics/OpenAccess

Mots-clés En

Ethanol prices, Futures markets, Markov-switching regime models, Hedge ratio

Sujets proches En

Alkyl alcohol Anhydrous alcohol Absolute ethanol Ethyl hydrate Hydroxyethane Ethyl alcohol Anhydrol

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Emmanuel Hache et al., « Market Efficiency and Optimal Hedging Strategy for the US Ethanol Market », HAL SHS (Sciences de l’Homme et de la Société), ID : 10670/1.272200...

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The aim of this paper is to study the ethanol price dynamics in the US market and find the optimal hedging strategy. To this end, we first attempt to identify the long-term relationship between ethanol spot prices and the prices of futures contracts on the Chicago Board of Trade (CBOT). Then, we model the short-term dynamics between these two prices using a Markov-switching vector error correction model (Ms-VECM). Finally, accounting for the variance dynamics using a Gjr-MGarch error structure, we compute a time-varying hedge ratio and determine the optimal hedging strategy in the US ethanol market.

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