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Abstract

Foreign exchange hedging ratios are simultaneously estimated alongside freight and commodity ratios in a time-varying portfolio framework. Foreign exchange futures are found to be by far the most important derivative instrument to be employed in order to reduce uncertainty for traders. Our results lend support to the decision by LIFFE to cease trading the BIFFEX freight futures contract because of its low levels of trading activity, which likely resulted from its apparent unattractiveness as a hedging instrument.

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