The effects of transaction costs on the optimal price and production risk management for cocoa-exporting countries

2017-12-19 10:55:05 Viewed: 478 Downloads: 114
  • The effects of transaction costs on the optimal price and production risk management for cocoa-exporting countries

      Williams Ohemeng, Bo Sjö and Michael Danquah

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    Pub: 2017-12-19 10:55:05

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  • This paper derives and estimates empirically the role of transactions costs
    for the optimal price-risk hedge ratios for four cocoa producing SSA countries
    (Cameroon, Ghana, Nigeria and Cote d’Ivoire). Using monthly data from 1966
    to 2009, transaction costs are introduced in two commonly used approaches for
    finding optimal hedge ratios under both price and production risk; the meanvariance approach and the logarithmic utility based approach. For the mean
    variance the optimal hedge ratios for cocoa are around 0.93 and 1.0 for all
    countries and different transaction costs and levels of risk aversion. For the
    logarithmic utility approach, which is supposed to be a more realistic approach the hedge ratios are lower than unity, differ more across countries and are
    reduced by higher transaction costs. Therefore developing appropriate market
    regulations where transaction cost on intermediaries are kept to minimal is
    relevant for these countries.


    JEL Classification: G13, C52, Q11

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  • Keywords

    Futures markets, optimal hedge ratio, cocoa


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