Quotation Ziegelbäck, Martin, Kastner, Gregor. 2013. Arbitrage hedging in markets for the US lean hogs and the EU live pigs. Agricultural Economics. 59 (11), 505-511.


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Abstract

The paper describes an attempt to gain insight into the relationship between cash and futures markets for US lean hogs and EU live pigs, and the opportunity of arbitrage hedging. In doing so, the authors use newer methods of threshold cointegration analysis for time series from 1999 until 2008. Besides the existence of a long-run equilibrium, asymmetric price adjustments can be demonstrated. This is especially the case for the EU live pigs, where price variations of the basis are higher and exhibit lower standard deviation. The results also perfectly show that cash prices follow the futures market more than the other way round. Furthermore, a grid search has revealed that the residual-based threshold in either market is near zero and therefore coherent with economic interpretation. Thus, at least theoretically, arbitrageurs in those markets are able to exploit the price differences between the two markets and reap no-risk monetary benefit. Hence, the results are in line with the statement that "speculating the basis" generates a better return.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Agricultural Economics
Citation Index SSCI
WU-Journal-Rating new VW-D
Language English
Title Arbitrage hedging in markets for the US lean hogs and the EU live pigs
Volume 59
Number 11
Year 2013
Page from 505
Page to 511
Reviewed? Y
URL http://www.agriculturejournals.cz/web/agricecon.htm?volume=59&firstPage=505&type=publishedArticle
DOI https://doi.org/10.17221/14/2013-AGRICECON
Open Access Y

Associations

People
Kastner, Gregor (Details)
External
Ziegelbäck, Martin (Universität für Bodenkultur Wien)
Organization
Institute for Statistics and Mathematics IN (Details)
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