Timing a Hedge Decision: The Development of a Composite Technical Indicator for White Maize

26 February 2014
Publication Type: Working Paper
JEL Code: G13, G14, G32

South African white maize is considered to be significantly more volatile than any other agricultural product traded on the South African Futures Exchange (SAFEX). This accentuates the need to effectively manage price risk, by means of hedging, to ensure a more profitable and sustainable maize production sector (Geyser, 2013: 39; Jordaan et al., 2007: 320). This paper attempts to address this challenge by making use of technical analysis, focusing on the development of a practical and applicable composite technical indicator with the purpose of improving the timing of price risk management decisions identified by individual technical indicators. This substantiated the compilation of a composite indicator that takes both leading and lagging indicators into account to more accurately identify hedging opportunities. The results validated the applicability of such a composite indicator, as the composite indicator outperformed the individual technical indicators in the white maize market over the period under investigation.

Working paper 423
1 February 2014