To link to full-text access for this article, visit this link:
Byline: Taufiq Choudhry
Hedge ratio; GARCH; BEKK GARCH; GARCH-X; BEKK GARCH-X and variance
This paper investigates the hedging effectiveness of time-varying
hedge ratios in the agricultural commodities futures markets using four
different versions of the GARCH models. The GARCH models applied are the
standard bivariate GARCH, the bivariate BEKK GARCH, the bivariate
GARCH-X and the bivariate BEKK GARCH-X. Futures data for corn, coffee,
wheat, sugar, soybeans, live cattle and hogs are applied. Comparison of
the hedging effectiveness is done for the within sample period
(1980-2004), and two out-of-sample periods (2002-2004 and 2003-2004).
Results indicate superior performance of the portfolios based on the
GARCH-X model estimated hedge ratio during all periods.
School of Management, University of Southampton, Highfield,
Southampton SO17 1BJ, UK
Received 28 March 2007; Revised 17 July 2008; Accepted 21 November
(footnote) [star] The author thanks two anonymous referees and the
editor for several useful comments and suggestions. The author also
thanks the participants of the European Financial Management Association
conference 2006 Madrid, Spain for valuable comments and suggestions on
an earlier draft of the paper. Any remaining errors and omissions are
the author's responsibility alone.