Ex Ante Basis Risk in the Live Hog Futures Contract : Has Hedgers' Risk Increased?

Basis behavior can have a direct affect on hedging and pricing decisions. Here, ex ante basis risk for selected live hog cash markets is analyzed from 1985 through 1994. One and five month ahead econometric, time series, and naive forecasts are used to construct measures of basis risk based on mean squared forecast errors and market timing ability. The findings suggest that basis risk has not increased nor has basis predictability declined relative to historical levels. The recent decline in demand for futures contracts is likely attributable to other structural changes in the industry