SIMULTANEOUSLY DETERMINED, TIME-VARYING HEDGE RATIOS IN THE SOYBEAN COMPLEX

Time-varying hedge ratios are derived which account for the dynamic ch aracteristics of prices in the soybean complex. A multivariate general ized autoregressive heteroskedastic (MGARCH) model, along with other c onditional models, is used to specify the relevant covariance matrix. While the time-varying representations of the variance matrix are stat istically appropriate, ex ante and ex post hedging effectiveness indic ate that they provide minimal gain to hedging in terms of mean return and reduction in variance over a constant conditional procedure. Wheth er similar findings arise from other applications of GARCH models to o ptimal hedging is a question for further research.