Virginia Tech
    • Log in
    View Item 
    •   VTechWorks Home
    • ETDs: Virginia Tech Electronic Theses and Dissertations
    • Masters Theses
    • View Item
    •   VTechWorks Home
    • ETDs: Virginia Tech Electronic Theses and Dissertations
    • Masters Theses
    • View Item
    JavaScript is disabled for your browser. Some features of this site may not work without it.

    Hog Profit Margin Hedging: A Long-term Out-of-sample Evaluation

    Thumbnail
    View/Open
    KeePMH.pdf (575.8Kb)
    Downloads: 200
    Date
    2004-05-10
    Author
    Kee, Gary D.
    Metadata
    Show full item record
    Abstract
    This thesis is a long-term evaluation of the profit margin hedging strategy suggested by Kenyon and Clay. To implement this strategy an expected profit margin is estimated based on the amount of pork, corn price, and soybean meal price. The profit margin that can be 'locked in' by the futures market is calculated from the futures prices of live hogs, corn and soybean meal with an allowance for other cost. The hedging rule is to hedge hogs, corn and soybean meal when a profit margin of fifty percent above the expected profit margin can be 'locked-in' with the futures. In their original paper, using data from 1975-82, Kenyon and Clay found this method of hedging stabilized cash flow while increasing the overall profit level. Using out-of-sample data from 1983-98, the current research finds no difference in profits from hedging versus not hedging. The most obvious reason for the lack of success is the inability to predict the expected profit margin with the simple supply model used by Kenyon and Clay. Addition of demand shifting variables to the model failed to significantly improve the prediction of expected profit margin or the hedging results. The hedging strategy was also affected by a significant decrease in the variance in the futures market that lead to a decrease in hedging opportunities. With the failure of the Kenyon and Clay hedging strategy with out-of-sample data, this research empirically demonstrates the need for out-of-sample testing of selective hedging strategies.
    URI
    http://hdl.handle.net/10919/10026
    Collections
    • Masters Theses [21540]

    If you believe that any material in VTechWorks should be removed, please see our policy and procedure for Requesting that Material be Amended or Removed. All takedown requests will be promptly acknowledged and investigated.

    Virginia Tech | University Libraries | Contact Us
     

     

    VTechWorks

    AboutPoliciesHelp

    Browse

    All of VTechWorksCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsThis CollectionBy Issue DateAuthorsTitlesSubjects

    My Account

    Log inRegister

    Statistics

    View Usage Statistics

    If you believe that any material in VTechWorks should be removed, please see our policy and procedure for Requesting that Material be Amended or Removed. All takedown requests will be promptly acknowledged and investigated.

    Virginia Tech | University Libraries | Contact Us