The Empirical Research Of Evaluating The Optimal Hedging Ratio Of Hu Copper

Two of the most important function of future market are the price discovering and the avoiding of the price fluctuations in spot market. For enterprises, it is highly possible that the price fluctuations in spot market may result in a loss (or additional profit).Especially after the global financial crisis in 2008, sharp declines of commodity prices in the international markets happened. If related companies did not take hedging, the crisis would be a fatal blow. And the producing and operating enterprises are often risk-averse. Then they need a tool to hold their assets(or assets gotten in future) in order to stabilize production costs, or gain steady profit. The hedging is a very effective tool. Through hedging operations, enterprises can largely avoid the risk of price fluctuations. And the core issue is evaluating the hedging ratio.In this paper, with the models of OLS, B-VAR, B-VECM,and BEKK-GARCH,we take Hu Copper for example to evaluate the optimal hedging ratio. And with the method of earning-risk comparative analysis, we compare the effectiveness of the four models. And the hedging ratios are estimated in the financial crisis period. We compare it with the ratios evaluated in the common period. Meantime, we compare the hedging effectiveness of the two periods.Based on the empirical research, this paper found the following conclusions:1) Using hedging, enterprises can effectively circumvent price fluctuation risks in the spot market. In estimated interval, the evaluating results of OLS model are optimal. While in inspection interval, the evaluating results of BEKK-GARCH model are optimal, indicating that BEKK-GARCH model has a greater advantage in forecasting. Same time, because of the convenience of operation of OLS method, it is appropriate for enterprises to use OLS method to hedge.2) When using same model, financial crisis will have an impact to the evaluating result. The hedging ratios evaluated in financial crisis period would be slightly higher, and the effectiveness would be lower than in the common period.