Hedging effectiveness, market efficiency and forecasting in the shrimp futures market
Abstract
The only two seafood commodities traded in futures markets are frozen white and black tiger shrimps on the Minneapolis Grain Exchange (MGE). These two contracts, however, have failed to attract the expected trade volume based on the underlying shrimp cash market flow. ^ The first manuscript investigates the hedging effectiveness and the adequacy of the premiums/discounts are measured for the various shrimp size categories traded in each contract. The analyses indicate that the hedging effectiveness of both contracts is relatively modest. It is concluded that part of the explanation for the performance of the contracts resides in high deliverable category exchange option values, which stem from volatility in the price differentials between size categories. ^ In the second manuscript, the analyses focus on testing whether deliverable shrimp size categories are close enough to participate within two futures contracts, and also whether the shrimp futures market is efficient. Results indicate poor price relationship with ineffective premiums/discounts and market inefficiency. These results and the momentous changes taking place in the seafood industry are contrasted to discuss the viability of seafood futures contracts, in general. ^ Since shrimp futures prices do not predict cash prices, there may be an opportunity for increased returns through forecasting. This is investigated in the third manuscript for a number of hedging strategies. The comparisons are done using economic expected utility theory criteria rather than with statistical measures. This way, the value of information to traders can be estimated. ^
Subject Area
Economics, General
Recommended Citation
Josue Martinez-Garmendia,
"Hedging effectiveness, market efficiency and forecasting in the shrimp futures market"
(2000).
Dissertations and Master's Theses (Campus Access).
Paper AAI9989449.
http://digitalcommons.uri.edu/dissertations/AAI9989449