Author: Steffen VolkenandPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Three Essays on Market Microstructure and Price Formation in Agricultural Commodity Futures
Author: Steffen VolkenandThree Essays in Commodity Futures Markets
Author: Three Essays In Commodity Price Dynamics
Author: Amal DabbousPublisher:
ISBN:
Category :
Languages : en
Pages : 121
Book Description
This thesis consists of three essays in commodity price dynamics. In the first essay, we embed a staggered price feature into the speculative storage model of Deaton and Laroque (1996). Intermediate goods inventory speculators are added as an additional source of intertemporal linkage which helps us to replicate the stylized facts of the observed commodity price dynamics. The staggered pricing mechanism adopted in this paper can be viewed as a parsimonious way of approximating various types of frictions that increase the degree of persistence in the first two conditional moments of commodity prices. The structural parameters of our model are estimated by simulated method of moments using actual prices for four agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices. The second essay investigates the determinants of the percentage change in commodity prices. We apply the dynamic Gordon growth model technique and conduct the variance decomposition for the percentage change in spot commodity prices to 6 agricultural commodities. The model explains the percentage change in spot commodity prices in terms of the expected present discounted values of interest rate, yield spread, open interest and convenience yield. Empirical results indicate that the model is successful in capturing a large proportion of the variability in the 6 agricultural commodity prices. Moreover, we show that yield spread and open interest help predicting changes in commodity prices. Finally, the third essay evaluates different hedging strategies for eleven commodities. In addition to the traditional regression hedge ratio model (OLS) and the vector error correction model (VECM), we estimate dynamic hedge ratios using the conventional dynamic conditional correlation model (DCC) of Engle (2002) and the diagonal BEKK model (DBEKK) of Engle and Kroner (1995). Moreover, we propose two more advanced models, the DCC model and the DBEKK model that will account for the impact of the growth rate of open interest on market’s volatility and co-movements of commodity spot and futures returns. The empirical analysis shows that adding the growth rate of open interest improves the in-sample hedging effectiveness of the DCC model. Furthermore, the out-of-sample hedging exercise empirical results show that static models present the best out-of-sample hedging performance for 5 of the commodities. The DCC model presents the smallest basis variance for 4 of the commodities. The DBEKK model with the growth rate of open interest performs the best in terms of the basis variance reduction for corn and wheat. Our out-of-sample empirical findings provide important implications for futures hedging and highlight the fact that the use of static models to determine the optimal hedge ratio could be more effective than the use of dynamic hedge ratio models.
Three Essays on Commodity Futures and Options Markets
Author: Na JinEssays on Theoretical and Empirical Studies of Commodity Futures Markets
Author: Haijiang ZhouPublisher:
ISBN:
Category : Commodity futures
Languages : en
Pages :
Book Description
Abstract: The three essays of this thesis research several theoretical and empirical issues of the commodity futures markets, specifically, the metals markets at the London Metal Exchange (LME) and the U.S. soybean and corn markets at the Chicago Board of Trade. Chapter two examines the cost of carry theory for five metals at the London Metal Exchange (LME). A quad-variate cointegration model is constructed and empirical results show that a long run relationship exists for cash and 3-month metals futures prices, 3-month interest rates and physical storage costs. The finding reconciles previously inconsistent findings regarding the cointegration of temporal prices in the presence of non-stationary interest rates. Chapter three updates the measurement of the supply of storage model and develops a two-equation system model which consists of the supply of storage equation and the price spread-convenience yield equation. Three stage least squares (3SLS) estimation method and bootstrapping 3SLS are applied to the CBOT soybeans data and results reveal that convenience yield and variability of new crop futures might play key roles in making storage decisions during the crop year. Chapter four develops a new measurement of the stock (inventory)-price relationship for commodity markets by constructing an equally weighted ending stocks-use ratio. A fully specified polynomial function is developed with consideration of three policy regimes due to the 1985 and 1996 US farm policy reforms. Model selection is conducted from both the fitting perspective and the forecast perspective. Results show that grain market analysts may benefit from using the proposed new measurement for forecasting prices. In summary, this study contributes to the understanding of the theoretical and empirical issues of the commodity futures markets, including the cost of carry theory, the supply of storage theory and the convenience yield theory.
Three Essays on Agricultural Commodity Market Linkages
Author: Shu MengThree Essays on Price Discovery in the Cotton Futures Market
Author: Joseph Peter JanzenPublisher:
ISBN: 9781303442872
Category :
Languages : en
Pages :
Book Description
Recent booms and busts in commodity prices have placed renewed scrutiny on commodity futures markets as a mechanism for price discovery, the process of incorporating new information about the relative scarcity of the commodity into prices. Such concerns are not new; there has been some distrust of futures market price discovery since the inception of these markets. As these markets evolve, new market participants and institutions may influence price discovery. Using the Intercontinental Exchange (ICE) cotton futures market as a laboratory, I consider three such forces potentially responsible for poor price discovery during the 2007-2011 period of volatile cotton prices. These are financial speculation, electronic trading, and funding constraints on commercial hedgers. In Chapter 1, I study whether the increased presence of financial firms, particularly commodity index traders, drives cotton futures prices away from the levels implied by supply and demand under rational expectations. I estimate a structural vector autoregression model of the cotton futures market. My model develops a new method to point identify shocks to precautionary demand for cotton separately from shocks to current supply and demand and separately identifies the effects of two types of speculation: precautionary demand for the commodity and financial speculation. I show empirically that most cotton price variation stems from contemporaneous unanticipated shocks to current cotton supply and demand. However, the 2008 price spike came from an increase in precautionary demand due to projections of lower future production. I find no evidence in support of claims that financial speculation causes commodity booms and busts.Chapter 2 considers the introduction of electronic trading to the cotton futures market across three periods of floor trade, parallel floor and electronic trade, and electronic-only trade. I statistically decompose intraday variation in cotton prices into a component related to information about market fundamentals and a ''pricing error'' caused by frictions in the trading mechanism. Better market quality or price discovery is characterized by lower variance of the pricing error. Unlike previous studies of floor and electronic trading, I consider more than average measures of market quality. I calculate statistics for market quality for each trading day, and study their trend, variance, persistence, and relationship to other variables related to price discovery. I find that market quality improved, but became more variable under electronic trading. This relationship between electronic trading and market quality is robust to controls for changes over time in the number of trades, trading volume, and price volatility.My final chapter considers the role of funding constraints in exacerbating futures price spikes. I review the experience of commercial hedgers during the 2008 cotton futures price spike. In this period, commercial hedgers without access to credit were forced to close futures positions in an illiquid market. Losses incurred on these trades led some firms to exit the cotton merchandising business. I use facts from the cotton case to develop a dynamic model of futures market equilibrium in the short-run for cases where funding constraints for some hedging firms bind and do not bind. Analytical results show that observed futures price volatility can be explained by the relation between funding liquidity of trading firms and market liquidity. This relationship alters the trading behavior of hedgers and results in diminished price discovery.
American Doctoral Dissertations
Author: Publisher:
ISBN:
Category : Dissertation abstracts
Languages : en
Pages : 800
Book Description
Dissertation Abstracts International
Author: Publisher:
ISBN:
Category : Dissertations, Academic
Languages : en
Pages : 506
Book Description
Commodities and Commodity Derivatives
Author: Helyette GemanPublisher: John Wiley & Sons
ISBN: 0470687738
Category : Business & Economics
Languages : en
Pages : 479
Book Description
The last few years have been a watershed for the commodities, cash and derivatives industry. New regulations and products have led to an explosion in the commodities markets, creating a new asset for investors that includes hedge funds as well as University endowments, and has resulted in a spectacular growth in spot and derivative trading. This book covers hard and soft commodities (energy, agriculture and metals) and analyses: Economic and geopolitical issues in commodities markets Commodity price and volume risk Stochastic modelling of commodity spot prices and forward curves Real options valuation and hedging of physical assets in the energy industry It is required reading for energy companies and utilities practitioners, commodity cash and derivatives traders in investment banks, the Agrifood business, Commodity Trading Advisors (CTAs) and Hedge Funds. In Commodities and Commodity Derivatives, Hélyette Geman shows her powerful command of the subject by combining a rigorous development of its mathematical modelling with a compact institutional presentation of the arcane characteristics of commodities that makes the complex analysis of commodities derivative securities accessible to both the academic and practitioner who wants a deep foundation and a breadth of different market applications. It is destined to be a "must have" on the subject.” —Robert Merton, Professor, Harvard Business School "A marvelously comprehensive book of interest to academics and practitioners alike, by one of the world's foremost experts in the field." —Oldrich Vasicek, founder, KMV