Ex Ante Basis Risk in the Live Hog Futures Contract: Has Hedgers' Risk Increased?

OFOR Working Paper No. 94-11

Posted: 1 Sep 1999

See all articles by Philip Garcia

Philip Garcia

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Dwight R. Sanders

Southern Illinois University - Agribusiness Economics

Date Written: December 1995

Abstract

Basis behavior can have a direct affect on hedging and pricing decisions. Here, ex ante basis risk for selected live hog cash markets is analyzed from 1985 through 1994. One and five month ahead econometric, time series, and naive forecasts are used to construct measures of basis risk based on mean squared forecast errors and market timing ability. The findings suggest that basis risk has not increased nor has basis predictability declined relative to historical levels. The recent decline in demand for futures contracts is likely attributable to other structural changes in the industry.

JEL Classification: Q11

Suggested Citation

Garcia, Philip and Sanders, Dwight R., Ex Ante Basis Risk in the Live Hog Futures Contract: Has Hedgers' Risk Increased? (December 1995). OFOR Working Paper No. 94-11, Available at SSRN: https://ssrn.com/abstract=5915

Philip Garcia (Contact Author)

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
427 Mumford Hall
Urbana, IL 61801
United States
217-333-0644 (Phone)
217-333-5538 (Fax)

Dwight R. Sanders

Southern Illinois University - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

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