An Empirical Research On The Hedging Performance Of Copper Future Market In China

One of the basic functions of future market is hedging from market pricefluctuations. This paper analyzes how to estimate the optimal hedge ratios incopper future market.This paper selects 1001 data of spot and future prices from http://www.shfe.com.cnand http://www.smm.com.cn. We use OLS model, B-VAR model and ECM modelto estimate the optimal hedge ratios, and analysts the outcomes. Then we judge theperformance of each model and compare them from point of view of maximizingutility and minimizing risk.The results state:1,The price fluctuation of copper in future market and in spot market are verysimilar, having a correlation coefficient of 0.99, which means copper future canbe used in hedging.2,There is a significant cointegration relationship between copper spot price andfuture price. Regarding to this relationship, the ECM model gives a largerhedging ratio than OLS model and B-VAR model do.3,ECM model is most effective in minimizing risks4,OLS model is most effective in maximizing utilities...