The Feasibility of Cross Hedging Wood Pulp with CME Lumber Futures

Min Su Kim; Seon-Woong Kim; Byung-Sam Yoon

doi:10.7584/JKTAPPI.2019.10.51.5.38

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The Feasibility of Cross Hedging Wood Pulp with CME Lumber Futures

30 October 2019. pp. 38-44

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Abstract

The main objective of the study is to determine whether the CME (Chicago Mercantile Exchange) random length lumber futures can be used as a cross hedging vehicle for the wood pulp (LBKP and NBKP). In order for the cross hedging to be feasible, there should be a strong positive relationship between the cash price and the futures price. This study conducted rigorous statistical analyses such as cointegration test and Granger causality test to examine the price relationship between CME lumber futures and wood pulp. The empirical analyses suggest that CME random length lumber futures can not be used as a potential cross hedging vehicle for wood pulp.

Keywords

Cross hedging

wood pulp

LBKP

NBKP

CME random length lumber futures

hedge ratio

hedging effectiveness

References

Literature Cited

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CME Group, Softwood and Hardwood Pulp Futures and Options, Chicago, USA (2009).

Johansen, S., Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models, Econometrica 59:1551-1580 (1991).

10.2307/2938278

Ederington, L. H., The hedging performance of the new futures markets, Journal of Finance 34:157-170 (1979).

10.1111/j.1540-6261.1979.tb02077.x

MacKinnon, J. G., Haug, A. A., and Michelis, L., Numerical distribution functions of likelihood ratio tests for cointegration, Journal of Applied Econometrics 14:563-577 (1999).

10.1002/(SICI)1099-1255(199909/10)14:5<563::AID-JAE530>3.3.CO;2-I

Information

Publisher :Korea Technical Association of The Pulp and Paper Industry
Publisher(Ko) :한국펄프종이공학회
Journal Title :Journal of Korea TAPPI
Journal Title(Ko) :펄프종이기술
Volume : 51
No :5
Pages :38-44
Received Date : 2019-08-05
Revised Date : 2019-10-01
Accepted Date : 2019-10-02
DOI :https://doi.org/10.7584/JKTAPPI.2019.10.51.5.38

Journal of Korea TAPPI ISSN:0253-3200(Print) 펄프종이기술

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Literature Cited