Futures market hedging efficiency in a new futures exchange: Effects of trade partner diversification

Abstract

This paper uses transaction data to examine hedging efficiency in a new futures exchange; the Fish Pool salmon futures exchange in Norway. The paper utilizes data on firm level exporter/importer transaction prices to quantify firm level futures hedging efficiency. This allows us to address heterogeneity in firm level hedging efficiency. The main result of this paper is that larger firms with better trade partners diversification experience better hedging efficiency using the futures, which encourages them to participate in the futures market. Results are discussed in light of recent declines in participation in the salmon futures exchange.