The effects of transaction costs on the optimal price and production risk management for cocoa-exporting countries
2015 (English)In: African Review of Economics and Finance, ISSN 2042-1478, E-ISSN 2410-4906, Vol. 7, no 2, 84-104 p.Article in journal (Refereed) Published
This paper derives and estimates empirically the role of transactions costsfor the optimal price-risk hedge ratios for four cocoa producing SSA countries(Cameroon, Ghana, Nigeria and Cote d’Ivoire). Using monthly data from 1966to 2009, transaction costs are introduced in two commonly used approaches forfinding optimal hedge ratios under both price and production risk; the mean-variance approach and the logarithmic utility based approach. For the meanvariance the optimal hedge ratios for cocoa are around 0.93 and 1.0 for allcountries and different transaction costs and levels of risk aversion. For thelogarithmic utility approach, which is supposed to be a more realistic approach the hedge ratios are lower than unity, differ more across countries and arereduced by higher transaction costs. Therefore developing appropriate marketregulations where transaction cost on intermediaries are kept to minimal isrelevant for these countries.
Place, publisher, year, edition, pages
2015. Vol. 7, no 2, 84-104 p.
Futures markets, optimal hedge ratio, commodities, cocoa
IdentifiersURN: urn:nbn:se:liu:diva-124595OAI: oai:DiVA.org:liu-124595DiVA: diva2:900965