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Hog Options: Contract Redesign and Market Efficiency

Published online by Cambridge University Press:  26 January 2015

Hernán A. Urcola  and
Scott H. Irwin
Hernán A. Urcola
Affiliation:
Agricultural Economics and Rural Sociology Area, National Institute of Agricultural Technology (INTA), Balcarce, Argentina
Scott H. Irwin
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois at Urbana, Champaign, IL
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Abstract

This article tests the efficiency of the hog options market and assesses the impact of the 1996 contract redesign on efficiency. We find that the hog options market is efficient, but some options yielded excess returns during the live hogs period but not during the lean hogs period. Our findings indicate that the hog options market is efficient and is consistent with the new contract improving the efficiency of the market. However, other market conditions such as lower transaction costs during the lean hogs period can also contribute to reduce expected option returns during the latter period.

Keywords

hog optionsmispricing perceptionscontract redesigntrading returnsC15G12G14Q13
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 42 , Issue 4 , November 2010 , pp. 773 - 790
Copyright
Copyright © Southern Agricultural Economics Association 2010

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