Corn Futures Hedge Ratio Of Research

For some kinds of reasons, spot price of agricultural products fluctuates frequently, so that the enterprises which are in great demand for agricultural products are exposed to huge market risk that is created by the price fluctuation of agricultural products. These enterprises are in urgent need to make use of agricultural commodity futures to hedge, so as to avoid or transfer spot price risk. Due to the existence of basis, the effectiveness of making use of the traditional hedging strategy(the hedging ratio is1) to avoid spot price risk is not that remarkable. In order to avoid spot price risk effectively, these enterprises have to make use of ratio hedging strategy. For the time being, the ascertain of the hedging ratio become the most concerned issues to these enterprises.In order to solve the problem of the hedging ratio, we select corn which is the most representative agricultural products to be the object of our study. Firstly, we select the futures price of corn which is published by the Da Lian commodity exchange and the spot price of corn which is published on the tianqi futures website to be our sample data.Secondly, we do a statistical test to the sample data, and the result suggests that the futures price and the spot price are both non-stationary series, and there are co-integration and ARCH effect between these two series. Thirdly, on the basis of the statistical test, taking the transactioninto consideration, we select the VEC model to estimate the hedging ratio between the spot products and futures of corn. Finally, aiming at the question that how much risk the hedging ratio can reduce, we do a performance evaluation to it.Conclusion:the hedging ratio between the futures price and the spot price in the sample data is0.794, that is to say, if we have a spot products of corn, we can purchase0.794corn futures to hedge. Comparing with the strategy without hedging, our hedging strategy can reduce75.4%of risk, and comparing with the equal proportion hedging strategy, our hedging strategy can reduce39.4%of risk. The conclusion suggests that the corn enterprises in China need to hedge with corn futures urgently, and obviously, the effectiveness of the proportion hedging is superior to the traditional hedging (the hedging ratio is1).