Title

Hedging price risk when no direct hedge vehicle exists: the case of silicon

Journal Title

Applied Economics Letters

Publication Date

11-2013

Abstract

Silicon has wide applications in the electronic, ferrous foundry and chemical industries but does not possess a well-developed forward or futures market. Here we investigate potential candidates to cross-hedge silicon’s price risk. Our results show that a proxy for a newly introduced Chicago Mercantile Exchange (CME) ferrous contract, iron and steel scrap, explains close to 60% of the variation in silicon price changes. Estimated Generalized Least Squares (EGLS) estimations of hedge ratios are shown to produce more consistent hedge-effectiveness over OLS counterparts. Thus, it appears that the ferrous contract could fulfil this role.

Author Supplied Keywords

Silicon, Ferrous scrap, Futures, Hedging-effectiveness, G13, G32, L61

Subjects

Silicone industry

Publication Information

Applied Economics Letters, 2014, Volume 21, Issue 4, 276-279.

© 2014 Taylor & Francis

Linked version is the final published version.

DOI

10.1080/13504851.2013.854293

Peer-Reviewed

Yes

Document Type

Journal Article

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Published Version

(Available to UP community as permitted)

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