Title: Exploring optimal hedging strategy in Thai rice pledging scheme policy

Authors: Thanasin Tanompongphandh; Nattapong Puttanapong; Preesan Rakwatin

Addresses: Department of Economics, Faculty of Economics, Kasetsart University, 50 Ngam Wong Wan Rd, Ladyao Chatuchak, Bangkok 10900, Thailand ' Faculty of Economics, Thammasat University, 2 Prachan Road, Phranakorn, Bangkok 10200, Thailand ' Research and Development Group, Geo-Informatics and Space Technology Development Agency (GISTDA), 120 The Government Complex, Building B, 7th Floor, Chaeng Wattana Road, Lak Si, Bangkok 10210, Thailand

Abstract: From 2011-2014, the Thai government pledged to buy Thai paddy rice above the market price in order to subsidise Thai rice farmers and push the world rice price higher. However, the volatility of the rice price casts uncertainty over how much the Thai Government fiscal budget will be liable for. Following optimal hedging technique and mean-variance framework, this paper explores a hedging strategy for the Thai Government to protect against risk of price fluctuation. Based on in-sample and out-of-sample testing, result shows that the volatility of the returns decreases after optimally hedged portfolio are created. The results are robust against different estimation methods, namely, OLS, rolling OLS, and MGARCH model.

Keywords: optimal hedging; rice pledging; rice futures; paddy rice; rough rice futures; rice mortgage scheme.

DOI: 10.1504/IJEPEE.2018.093946

International Journal of Economic Policy in Emerging Economies, 2018 Vol.11 No.3, pp.198 - 208

Available online: 27 Jul 2018 *

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