Work

Futures market hedging efficiency in a new futures exchange: Effects of trade partner diversification

Year: 2019

Type: article

Abstract: This paper uses transaction data to examine hedging efficiency in a new futures exchange; the Fish Pool salmon futures exchange in Norway. The paper utilizes data on firm‐level exporter/importer transaction prices to quantify firm‐level futures hedging efficiency. This allows us to address heterogeneity in hedging efficiency and basis risk at the firm level. The main result of this paper shows that larger firms with greater trade partner diversification have lower basis risk. Such firms align their internal transaction price closer to the common spot price in the market, which encourages greater futures market participation. Results are discussed in light of recent declines in participation in the salmon futures exchange.

Source: Journal of Futures Markets

DOI: 10.1002/fut.22088

Authors: Atle Oglend, Hans‐Martin Straume

Institutions: University of Stavanger, BI Norwegian Business School

Language: English

Topic: Risk Management in Financial Firms

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funder: Norges Forskningsråd

Award: G355344730