Hedging long‐term commodity risk

This study focuses on the problem of hedging longer‐term commodity positions, which often arises when the maturity of actively traded futures contracts on this commodity is limited to a few months. In this case, using a rollover strategy results in a high residual risk, which is related to the uncertain futures basis. We use a one‐factor term structure model of futures convenience yields in order to construct a hedging strategy that minimizes both spot‐price risk and rollover risk by using futures of two different maturities. The model is tested using three commodity futures: crude oil, orange juice, and lumber. In the out‐of‐sample test, the residual variance of the 24‐month combined spot‐futures positions is reduced by, respectively, 77%, 47%, and 84% compared to the variance of a naïve hedging portfolio. Even after accounting for the higher trading volume necessary to maintain a two‐contract hedge portfolio, this risk reduction outweighs the extra trading costs for the investor with an average risk aversion. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:109–133, 2003     

Hedging under Transaction Costs in Currency Markets: a Continuous‐Time Model

We consider a general semimartingale model of a currency market with transaction costs. Assuming that the price process is continuous and the solvency cone is proper we prove a hedging theorem describing the set of initial endowments that allows the investor to hedge a contingent claim in various currencies by a self‐financing portfolio.     

Production and hedging under state‐dependent preferences

This study examines the behavior of the competitive firm under output price uncertainty and state‐dependent preferences. When there is a futures market for hedging purposes, the firm's optimal production decision is independent of the output price uncertainty and of the state‐dependent preferences. If the futures contracts are unbiased, the firm's optimal futures position is an over‐hedge or an under‐hedge, depending on whether the firm is correlation averse or correlation loving, and on whether the output price is positively or negatively expectation dependent on the state variable. When the firm has access not only to the unbiased futures but also to fairly priced options, sufficient conditions are derived under which the firm's optimal hedge position includes both hedging instruments. This study thus establishes a hedging role of options, which is over and above that of futures, in the case of state‐dependent preferences. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:945–963, 2012     

Time‐Varying Spillover Effects on Sectoral Equity Returns

In this paper, we investigate the integration of the Euro‐ and US‐wide sector equity indices by focusing on the return, volatility, and trend spillover effects of local and global shocks. We explore that unlike volatility spillovers, return spillovers are not significant enough to explain sector equity returns. Moreover, we are able to show that when the trend is incorporated into the volatility spillover analysis, a number of sector equity indices tend to react similarly to local and global shocks. Following this path, we arrive at four major sector groups: production and industry; consumer goods and services; financial; and technology, media, and telecommunication across Euro‐ and US‐wide sector equity indices.     

Hedging long‐term commodity risk: A comment

Y. V. Veld‐Merkoulova and F. A. de Roon (2003) adopted an encompassing model to demonstrate their linear yield assumption on the term structure of futures prices gains more empirical support than the linear price assumption proposed by A. Neuberger (1999). This comment points out the test procedure adopted is inappropriate and proposes an alternative non‐nested hypothesis testing method. Using the crude oil data, we find that the linear price assumption outperforms the linear yield assumption but is inferior to a generalized version of the linear yield assumption. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1093–1099, 2004     

Hedging and value at risk: A semi‐parametric approach

The non‐normality of financial asset returns has important implications for hedging. In particular, in contrast with the unambiguous effect that minimum‐variance hedging has on the standard deviation, it can actually increase the negative skewness and kurtosis of hedge portfolio returns. Thus, the reduction in Value at Risk (VaR) and Conditional Value at Risk (CVaR) that minimum‐variance hedging generates can be significantly lower than the reduction in standard deviation. In this study, we provide a new, semi‐parametric method of estimating minimum‐VaR and minimum‐CVaR hedge ratios based on the Cornish‐Fisher expansion of the quantile of the hedged portfolio return distribution. Using spot and futures returns for the FTSE 100, FTSE 250, and FTSE Small Cap equity indices, the Euro/US Dollar exchange rate, and Brent crude oil, we find that the semiparametric approach is superior to the standard minimum‐variance approach, and to the nonparametric approach of Harris and Shen (2006). In particular, it provides a greater reduction in both negative skewness and excess kurtosis, and consequently generates hedge portfolios that in most cases have lower VaR and CVaR. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:780–794, 2010     

Multidimensional Variance‐Optimal Hedging in Discrete‐Time Model—A General Approach

One of the well‐known approaches to the problem of option pricing is a minimization of the global risk, considered as the expected quadratic net loss. In the paper, a multidimensional variant of the problem is studied. To obtain the existence of the variance‐optimal hedging strategy in a model without transaction costs, we can apply the result of Monat and Stricker. Another possibility is a generalization of the nondegeneracy condition that appeared in a paper of Schweizer, in which a one‐dimensional problem is solved. The relationship between the two approaches is shown. A more difficult problem is the existence of an optimal solution in the model with transaction costs. A sufficient condition in a multidimensional case is formulated.     

Time‐Varying Linkage of Possible Safe Haven Assets: A Cross‐Market and Cross‐asset Analysis

This paper contributes to applying the time‐varying symmetrized Joe–Clayton copula to study the dynamic linkage among possible safe haven assets (SHAs) in the major international markets over the past 34 years. We re‐examine four major asset types (long‐term government bonds, equity indices, oil, and gold) and test whether they are qualified individually as a safe haven asset against when paired against each other in a specific market. The empirical analyses indicate that: (1) Government bonds are generally confirmed SHAs. (2) Gold and oil are overwhelming SHAs against government bond across the markets. (3) US and East Asian markets (Japan, Australia and New Zealand) have more SHA options than the other regions against equity index.     

Technology and Flexibility: Enablers of Collaboration and Time‐Based Logistics Quality

Collaboration has been cited as one of the most important elements in leveraging supply chains to achieve competitive advantage. Literature in the field of collaboration tends to focus on strategic level initiatives; this research examines the benefits of implementing collaborative approaches at the logistics operations level. We find that leading strategic indicators, including technological innovativeness, technological complementarity, and flexibility are positively related to higher levels of collaboration and logistics service quality at the operational level in retail firms.     

Time‐varying jump risk premia in stock index futures returns

This study tests the presence of time‐varying risk premia associated with extreme news events or jumps in stock index futures return. The model allows for a dynamic jump component with autoregressive jump intensity, long‐range dependence in volatility dynamics, and a volatility in mean structure separately for the normal and extreme news events. The results show significant jump risk premia in four stock market index futures returns including the DAX, FTSE, Nikkei, and S&P500 indices. Our results are robust to various specifications of conditional variance including the plain GARCH, component GARCH, and Fractionally Integrated GARCH models. We also find the time‐varying risk premium associated with normal news events is not significant across all indices. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:639–659, 2012     

A Multivariate Time‐Series Examination of Motor Carrier Safety Behaviors

Motor carriers’ operational safety affects multiple stakeholders including truck drivers, motor carriers, insurance companies, shippers, and the general public. In this article, I devise and test theory regarding motor carriers’ longitudinal performance for three classes of safety behaviors linked to carriers’ accident rates—Unsafe Driving, Hours‐of‐Service Compliance, and Vehicle Maintenance—tracked by the Federal Motor Carrier Safety Administration as part of the Compliance, Safety, and Accountability (CSA) program. Specifically, I draw on core concepts from sociological agency theory and resource dependency theory to devise middle‐range theory that generates never‐before‐tested hypotheses regarding carriers’ longitudinal safety performance for these classes of safety behaviors after the start of the CSA program. The hypothesized predictions are tested by fitting a series of multivariate latent curve models to four years of panel data for a random sample of 484 large, for‐hire motor carriers operating in the United States. The empirical findings corroborate the theoretical predictions and remain after robustness testing. These findings have important implications for scholars, motor carrier managers, procurers of motor carrier transportation services, and public policy makers.