Three Essays on Futures Markets

Fu, Luyang

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Description

Title

Three Essays on Futures Markets

Author(s)

Fu, Luyang

Issue Date

2002

Doctoral Committee Chair(s)

Garcia, Philip

Department of Study

Agricultural and Consumer Economics

Discipline

Agricultural and Consumer Economics

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Date of Ingest

2015-09-25T20:55:31Z

Keyword(s)

Economics, Agricultural

Language

eng

Abstract

Essays two and three explore optimal hedging strategies within the mean-variance framework. In essay two, we examine the non-linear relationship between optimal hedge ratios and transaction fees under different market conditions (spot returns). In essay three, we extend the study by Working (1962) and examine the sensitivity of optimal hedging ratios to heterogeneous expectations. The empirical results in both papers indicate that the optimal hedging ratio is an increasing function of the spot return and the correlation between futures and spot prices. The studies identify that the optimal hedge ratios are relatively sensitive to transaction fees and heterogeneous expectations of futures returns particularly when the spot returns are low. In addition, the optimal transaction fee, which maximizes the revenue of futures exchanges, is derived in essay two. The results reveal that futures exchanges should consider adjusting transaction fees in accordance to the spot returns, and that improving the hedging effectiveness may enhance the revenue of the exchange by providing an opportunity to increase transaction fees.

Graduation Semester

2002

Type of Resource

text

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http://hdl.handle.net/2142/82957

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