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Hedging under Uncertainty: Optimal price Risk Management under Transaction Costs for Cocoa Exporting Countries
GIMPA Business School, Accra,Ghana.
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.ORCID iD: 0000-0002-8145-1000
2015 (English)In: African Review of Economics and Finance, ISSN 2042-1478, Vol. 7, no 1Article in journal (Refereed) In press
Abstract [en]

This paper derives and estimates empirically the role of transactions costs for the optimal price-risk hedge ratios for four coca producing SSA countries (Cameroon, Ghana, Nigeria and Cote d’Ivoire). Using monthly data from 1966 to 2009, transaction costs are introduced in two commonly used approaches for finding optimal hedge ratios under both price and production risk;  the mean-variance approach and the logarithmic utility based approach.  For the mean variance the optimal hedge ratios for cocoa are around 0.93 and 1.0 for all countries and different transaction costs and levels of risk aversion. For the logarithmic utility approach, which is supposed to be a more realistic approach the hedge ratios are lower than unity, differ more across countries and are reduced by higher transaction costs. Therefore developing appropriate market regulations where transaction cost on intermediaries are kept to minimal is relevant for these countries.

Place, publisher, year, edition, pages
South Africa: African Journals on Line , 2015. Vol. 7, no 1
Keyword [en]
Hedging, Price risk Cocoa
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-114866OAI: oai:DiVA.org:liu-114866DiVA: diva2:792829
Available from: 2015-03-05 Created: 2015-03-05 Last updated: 2016-03-30

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Sjö, Bo

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