Using a moving average to determine cotton futures market entry dates Academic Article uri icon

abstract

  • A persisting question in using the cotton (Gossypium hirsutum L.) futures market to increase the net price received is that of determining the time to place hedges. The objective of this research was to develop an easily understood hedging strategy that would help cotton producers determine the time to hedge their cotton price with and without the use of stop orders. Historical daily December cotton futures closing prices from 1980 through 2000 were analyzed from the beginning of each contract through contract expiration. A 10-yr moving average was used to determine the hedging entry date. Results of the study suggested that the use of this strategy in determining the hedging market entry date increased the net price received by cotton producers $0.0549 kg-1 on average. When the returns from the date selection trading strategy were added to the average price received by Texas producers for cotton, the mean net price of the hedging strategy was statistically different from the mean price received by Texas producers for cotton. However, an F-test showed that the variance of the distribution of the hedging strategy was not statistically different from the variance of the average price received by producers for Texas cotton. These results suggest that the date selection strategy found in this study can significantly increase the mean net price received for cotton, but does not increase or decrease the variation in the net price received. © The Cotton Foundation 2001.

published proceedings

  • Journal of Cotton Science

author list (cited authors)

  • Bennett, B. K

complete list of authors

  • Bennett, BK

publication date

  • December 2001