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The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia

The Malaysian palm oil market, a crucial component of the global edible oils industry, experiences significant price volatility, particularly in crude palm kernel oil (CPKO). This volatility presents substantial challenges for market participants in managing financial risks. This study examines the...

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Main Author: Tham, Poh Seng
Format: Thesis
Language:English
English
Published: 2024
Subjects:
HF5546-5548.6 Office Management
HG Finance
Online Access:https://etd.uum.edu.my/11522/1/s900870_01.pdf
https://etd.uum.edu.my/11522/2/s900870_02.pdf
https://etd.uum.edu.my/11522/
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spelling my.uum.etd.115222025-01-20T02:47:24Z https://etd.uum.edu.my/11522/ The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia Tham, Poh Seng HF5546-5548.6 Office Management HG Finance The Malaysian palm oil market, a crucial component of the global edible oils industry, experiences significant price volatility, particularly in crude palm kernel oil (CPKO). This volatility presents substantial challenges for market participants in managing financial risks. This study examines the relationship between CPO's futures price and the hedging effectiveness of CPKO's spot price. It also investigates the relationship between unhedged and hedged portfolios and assesses the hedging effectiveness of FCPO contracts in mitigating CPKO price volatility. Advanced econometric techniques, including regression analysis, GARCH models, and time series analysis, were applied to a comprehensive dataset of daily CPKO spot prices and FCPO contracts from January 2010 to June 2022. This 12-year period provides a detailed examination of long-term market dynamics and price fluctuations in the Malaysian palm oil industry. The findings indicate a significant positive impact between FCPO and CPKO prices using the Naive 1-to-1 approach. The GARCH 1:1 model demonstrates enhanced risk reduction through time-adjusted hedge ratios. However, the Optimal Hedge Ratio (OHR) calculation reveals the complexities of using FCPO futures for hedging CPKO, as evidenced by a negative OHR. These results contribute significantly to hedging theory, particularly in emerging markets, by validating the application of regression and time series models in understanding the dynamics between spot and futures prices within the palm oil industry. Traders, producers, and policymakers for Crude palm kernel oil should emphasize the need for adaptable and effective hedging strategies to manage price risks within the palm oil industry. FCPO contracts may help stabilize price fluctuations, offering stability and predictability for the palm oil industry. Continuous adaptation and refinement of hedging strategies are essential for effectively mitigating risks 2024 Thesis NonPeerReviewed text en https://etd.uum.edu.my/11522/1/s900870_01.pdf text en https://etd.uum.edu.my/11522/2/s900870_02.pdf Tham, Poh Seng (2024) The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia. Doctoral thesis, Universiti Utara Malaysia.
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Electronic Theses
url_provider http://etd.uum.edu.my/
language English
English
topic HF5546-5548.6 Office Management
HG Finance
spellingShingle HF5546-5548.6 Office Management
HG Finance
Tham, Poh Seng
The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia
description The Malaysian palm oil market, a crucial component of the global edible oils industry, experiences significant price volatility, particularly in crude palm kernel oil (CPKO). This volatility presents substantial challenges for market participants in managing financial risks. This study examines the relationship between CPO's futures price and the hedging effectiveness of CPKO's spot price. It also investigates the relationship between unhedged and hedged portfolios and assesses the hedging effectiveness of FCPO contracts in mitigating CPKO price volatility. Advanced econometric techniques, including regression analysis, GARCH models, and time series analysis, were applied to a comprehensive dataset of daily CPKO spot prices and FCPO contracts from January 2010 to June 2022. This 12-year period provides a detailed examination of long-term market dynamics and price fluctuations in the Malaysian palm oil industry. The findings indicate a significant positive impact between FCPO and CPKO prices using the Naive 1-to-1 approach. The GARCH 1:1 model demonstrates enhanced risk reduction through time-adjusted hedge ratios. However, the Optimal Hedge Ratio (OHR) calculation reveals the complexities of using FCPO futures for hedging CPKO, as evidenced by a negative OHR. These results contribute significantly to hedging theory, particularly in emerging markets, by validating the application of regression and time series models in understanding the dynamics between spot and futures prices within the palm oil industry. Traders, producers, and policymakers for Crude palm kernel oil should emphasize the need for adaptable and effective hedging strategies to manage price risks within the palm oil industry. FCPO contracts may help stabilize price fluctuations, offering stability and predictability for the palm oil industry. Continuous adaptation and refinement of hedging strategies are essential for effectively mitigating risks
format Thesis
author Tham, Poh Seng
author_facet Tham, Poh Seng
author_sort Tham, Poh Seng
title The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia
title_short The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia
title_full The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia
title_fullStr The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia
title_full_unstemmed The effectiveness of hedging between Crude Palm Kernel Oil (CPKO) spot price and Futures Crude Palm Oil Contract (FCPO) in Malaysia
title_sort effectiveness of hedging between crude palm kernel oil (cpko) spot price and futures crude palm oil contract (fcpo) in malaysia
publishDate 2024
url https://etd.uum.edu.my/11522/1/s900870_01.pdf
https://etd.uum.edu.my/11522/2/s900870_02.pdf
https://etd.uum.edu.my/11522/
_version_ 1823095815066877952
score 13.244413

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