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Conference Papers Year : 2017

Efficiency Market Hypothesis and Optimal Hedge Ratio of the Ethanol Market

Anthony Paris
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Emmanuel Hache

Abstract

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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Dates and versions

hal-01647583 , version 1 (24-11-2017)

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  • HAL Id : hal-01647583 , version 1

Cite

Anthony Paris, Emmanuel Hache. Efficiency Market Hypothesis and Optimal Hedge Ratio of the Ethanol Market. 4ème Conférence annuelle de la FAERE , 2017, Nancy, Unknown Region. ⟨hal-01647583⟩
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