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Analysis of factors affecting the strength of - hedging the risk premium effect based on

Author: ZuoXiaMei
Tutor: SongJun
School: Fudan University
Course: Finance
Keywords: risk premium effect selective hedge term structure seasonaleffect
CLC: F724.5
Type: Master's thesis
Year: 2012
Downloads: 49
Quote: 0
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Abstract


All the research done by the scholars are based on the risk-minimum law and explore how to do hedge. This article is mainly inspired by the essay that factors of risk premium on the electricity future written by bessembinder et at (2002) and do some research about some relative mature goods on domestic commodity futures market. Mainly selected copper, natural rubber, fuel oil, wheat four varieties, not only because the relative market maturity and the more rational participants, but also balanced seller hedging dominant market and buyer hedging dominant market (the first three varieties are seller hedging dominant and wheat is buyer hedging dominant), at the same time taking into account the nature of industrial products and agricultural products(copper, fuel is typical industrial, rubber both has industrial and agricultural nature, wheat is typical agricultural products). And this study is divided into two parts.The first part is modeled on the Bessembinder et al (2002), explores the influences on the risk premium by the spot price volatility and skewness, as well as in-depth study of the maturity structure of the contract. And the results are both more pleased (consistent with theoretical assumption) and out of expectation (domestic future market has a unique personality). The assumption that the absolute value of risk premium has positive correlation with the spot price volatility meets the assumptions of the article. The special point is that the relationship between the skewness of spot price and risk premium. The regression of total sample show that the coefficient of spot price is negative significant on the copper, fuel and wheat markets and positive significant on the rubber market. It reflects the hedgers do hedge strictly on the former markets and show much more speculative on the rubber market, the so-called selective hedging. Thus the size of the spot price skewness coefficient is a measure of hedging participation level of the hedger. The revel of selective hedging is rising as the coefficient increasing. It is the theoretical basis of the second part of studying.The second part of the study is conducted on the basis of the results of first part of the study. The study about the skewness of spot price’s influence on the risk premium found that the skewness coefficient’s rising on behalf of speculative rising, while the skewness coefficient’s declining represents hedging strictly. So on the basis of changing the length of the observation period, I divide the sample to two sub-sample by two different ways to further explore the influencing factors of skewness coefficient. The first approach:divide the sample according to different maturities, from2month to11month period ranged, do regression again to study the impact of maturity to skewness coefficient. The second way:according the delivery month, from January to December, to do regression to explore the influence on skewness coefficient, the so-called seasonal effects. At the same time, this article explores the length of observation period’s effects on skewness coefficient. Overall, the results are predictable, but also in the unexpected.

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CLC: > Economic > Trade and Economic > China's domestic trade and economic > Circulation of commodities > Futures Trading
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