Portfolio Theory and the Demand for Futures: The Case of California Cotton.

This paper examines the simultaneous choice of cropping patterns and futures positions. It derives the demand for hedging as a function of the price of a hedge and the crop choice set; it estimates these functions for California cotton farmers. It finds that both the costs of hedging and the opportunity to diversify risk by growing other crops substantially change the optimal hedge for California cotton farmers. [ABSTRACT FROM AUTHOR]