The effects of skewness on optimal production and hedging decisions: An application of the skew‐normal distribution

Assume that the spot price has a skew‐normal distribution. This study investigates the effect of skewness on optimal production and hedging decisions. It is shown that skewness has no effect on the optimal production level but induces the firm to become more active in futures trading. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:278–289, 2010     

The effects of structural breaks and long memory on currency hedging

Empirical evidence suggests that unconditional variance of exchange rate return series is subject to occasional structural breaks that may induce spurious phenomenon of high persistence and long memory of volatility processes. In this study, we investigate the effects of such breaks on estimated risk-minimizing hedge strategies (ratios) and their performance in currency markets. Using bivariate GARCH (BGARCH) and fractionally integrated GARCH models, we estimate the hedge ratios for six foreign currencies in the full sample with and without controlling for breaks and each subsample of different unconditional variance regimes identified by a modified version of the Inclan C, and Tiao GC (1994) algorithm. Our findings suggest that daily currency risk can be better hedged with currency futures when controlling for unconditional variance breaks in the BGARCH model. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:607–632, 2010     

Multiperiod hedging in the presence of stochastic volatility

In this paper, we characterize the multiperiod minimum-risk hedge strategy within the stochastic volatility (SV) framework and compare it to other hedge strategies on the basis of hedging performance. Using crude oil markets as an example, we demonstrate that the SV model is appropriate in depicting price behaviour. However, ex ante and ex post comparisons indicate that the SV strategy is inferior to conventional hedging strategies. There is also evidence that the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) strategy may be better than the SV strategy, at least in terms of variance reduction.     

An empirical examination of the effectiveness of dollar-cost averaging using downside risk performance measures

Some studies find the dollar-cost averaging investment strategy to be sub-optimal using a traditional Sharpe ratio performance ranking metric. Using both the Sortino ratio and the Upside Potential ratio, we empirically test four investment strategies for alternative asset investments. We find the relative ranking of dollar-cost averaging remains inferior to alternative investment strategies. (JEL G1, G11, N2)     

Do country risk and financial uncertainty matter for energy commodity futures?

Using an instrumental variable quantile regression technique, this paper assesses whether country risk and financial uncertainty exert an impact on energy commodity futures prices under different commodity conditional return distributions over the period from January 1994 to July 2017. We also discuss whether the correlations change with different dimensions of country risk, that is economic, financial, and political. The results reveal that country risk and financial stress do have a significant impact on energy commodity returns of futures contracts with different maturities, but their direction, intensity, and significance differ, caused by the distinct market situations and divergent channels of country risk.     

Cash Flow Effects of the Saskatchewan Short-Term Hog Loan Program

The Saskatchewan short-term hog loan program of 2002 provided a nonmarket credit-line to participating hog producers. The repayment conditions for cash advances committed to by the provincial government depend on later hog prices, and so the program has derivative contract attributes. We model the contracts and use an estimated spot price stochastic process to establish summary statistics for producer benefits from the program .
Le programme de prêt à court terme que la Saskatchewan a offert à ses producteurs de porcs en 2002 comprenait une ligne de crédit non marchande. Comme les modalités de remboursement des avances de fonds engagées par le gouvernement provincial dépendent du prix futur du porc, ce programme possède les caractéristiques d'un instrument dérivé. Nous avons modélisé les contrats et nous avons utilisé un processus stochastique pour estimer le prix au comptant en vue d'établir des statistiques sommaires sur les avantages que les producteurs retirent de ce programme.     

The Year in Review: Economics at the Antitrust Division, 2020–2021

Challenging anticompetitive acquisitions of nascent competitors is a top priority of the Antitrust Division of the U.S. Department of Justice. It is especially important that competition agencies remain vigilant of such acquisitions in platform markets, where indirect network effects and other market forces tend to preserve the status quo at the expense of smaller, more innovative rivals and potentially final consumers. This article discusses two such attempted acquisitions: (1) Visa’s acquisition of technology firm Plaid that threatened to disrupt Visa’s monopoly power in online debit; and (2) Sabre’s acquisition of Farelogix, which is a firm that allows airlines to connect directly to travel agencies and thereby disintermediates Sabre and other global distribution systems.