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Article
Publication date: 14 November 2016

Kushankur Dey and Debasish Maitra

It has become an ongoing debate whether Indian commodity futures markets can accommodate farmers. The purpose of this paper is to examine whether Indian commodity futures markets…

Abstract

Purpose

It has become an ongoing debate whether Indian commodity futures markets can accommodate farmers. The purpose of this paper is to examine whether Indian commodity futures markets help rationalize farmers’ price expectation. The study starts with questions on the efficiency and other roles of commodity futures markets.

Design/methodology/approach

From a sectoral standpoint and economic importance, the study considers pepper, coffee, and natural rubber (NR) futures and spot markets. The efficiency of futures markets, divergence/convergence and causality between futures and spot markets have been studied by employing co-integrations, error correction and causality models. The sample period of the data are taken from the inception of futures trading. These three commodities are also compared on the basis of trading at the futures markets vs spot markets.

Findings

Analysis shows that though pepper futures market is informationally efficient in price discovery, while coffee and NR spot markets do the process faster. Pepper and coffee futures and spot prices exhibit the convergence; NR shows a sign of divergence. Unidirectional causality from pepper futures to spot market is observed wherein the former was weakly exogenous to the latter and while, bidirectional causality is observed in coffee and rubber. Coffee spot appears weakly exogenous while this remains inconclusive in the case of NR.

Research limitations/implications

The authors analyzed the futures markets in rationalizing the spot market price in three plantation crops in India. In order to make the study more generalizable, further research is warranted in other commodities including those prices of which are government regulated.

Originality/value

The paper is unique in terms of understanding the interaction or interrelationship between futures markets and spot markets and drawing inferences about the role of futures markets in price formation in plantation commodities like pepper, coffee and NR.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 6 no. 2
Type: Research Article
ISSN: 2044-0839

Keywords

Article
Publication date: 1 February 2001

Steven Wolowitz and Scott E. Mortman

An analysis of the defense of these cases contrasting them to similar cases on the equity side. The authors explore some technical and real defenses that are uniquely applicable…

Abstract

An analysis of the defense of these cases contrasting them to similar cases on the equity side. The authors explore some technical and real defenses that are uniquely applicable to the commodity futures world.

Details

Journal of Investment Compliance, vol. 2 no. 1
Type: Research Article
ISSN: 1528-5812

Article
Publication date: 1 September 2023

Dimitrios Panagiotou and Filio Naka

The purpose of this paper is to investigate for symmetries – in sign and size – between spot and futures prices in the markets of energy commodities.

Abstract

Purpose

The purpose of this paper is to investigate for symmetries – in sign and size – between spot and futures prices in the markets of energy commodities.

Design/methodology/approach

The aforementioned objective is pursued using daily observations of spot and futures prices for the commodities of crude oil, Brent, heating oil, gasoline and natural gas, along with local nonlinear regression.

Findings

Symmetry in sign and size cannot be rejected. This means that, shocks of the same absolute magnitude, but of different sign, are transmitted from futures prices to spot prices with the same intensity. In addition, larger absolute value price shocks in the futures are transmitted to the spot markets with the same intensity compared with smaller ones. The findings of symmetry in the comovements among prices reveal a lack of those commodities on diversifying the investors’ investment risk.

Originality/value

To the best of the authors’ knowledge, this is the first study to use local nonlinear regression to test for sign and size symmetry between futures and spot prices in the energy commodities markets.

Details

Studies in Economics and Finance, vol. 41 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Book part
Publication date: 5 July 2012

Aleksandr V. Gevorkyan and Arkady Gevorkyan

Derivatives market has been epitomized with gross evil in the wake of the global economic crisis that ensued in 2008. This study argues for more extensive understanding of the…

Abstract

Derivatives market has been epitomized with gross evil in the wake of the global economic crisis that ensued in 2008. This study argues for more extensive understanding of the phenomena as dynamics previously viewed unrelated now exhibit correlation. As empirical reference, this research relies on recent trends in the commodity futures contracts with analytical relation to the currency exchange rate and by extension the financial and real sectors. With varying intensity often speculative sporadic trading in crude oil, coffee, wheat, rice, sugar, and gold benchmark futures may inflict detrimental effects on the global development efforts. The issue is most acute in the emerging markets facing inflation fears, speculative movements of foreign currency-denominated funds, and underlying domestic currency value. This dynamic reasserts the concept of fundamental uncertainty allowing us to connect the typical risk-return stand with a dialectical unity of the financial, real sector, and social costs. Ultimately, issues raised in this study relate to the problems of social stability and sustained economic development in the postcrisis environment given high frequency and volatility of capital flows. As such, this chapter contributes to the literature that bridges financial empirical analysis with modern socially responsible economic development.

Details

Derivative Securities Pricing and Modelling
Type: Book
ISBN: 978-1-78052-616-4

Keywords

Article
Publication date: 8 March 2021

Saji Thazhugal Govindan Nair

This study aims to validate the “expectancy theory” of asset pricing and explores the price discovery process in metals futures markets.

Abstract

Purpose

This study aims to validate the “expectancy theory” of asset pricing and explores the price discovery process in metals futures markets.

Design/methodology/approach

This paper adopts the Johansen cointegration and vector error correction model approach to investigate the potentials of Pairs trading in the metals market during the period 2008–2019.

Findings

The results find the price movements in metal markets are not random walk and the current “futures” prices are the reasonable estimate of the “spot” metal prices in future. This study does not notice any significant differences in the price efficiency across metals markets, which signal the effects of limited idiosyncratic forces in price transmission.

Practical implications

The research suggests the covert use of metal futures to make gains from arbitrage trading.

Originality/value

The study emphasizes the potential of “pair trading” in commodity market context that is seldom discussed in academic papers.

Details

Journal of Financial Economic Policy, vol. 13 no. 5
Type: Research Article
ISSN: 1757-6385

Keywords

Article
Publication date: 22 September 2020

Qianqian Mao, Yanjun Ren and Jens-Peter Loy

The purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China…

Abstract

Purpose

The purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China agricultural commodity markets.

Design/methodology/approach

Using recently developed rolling window right-side augmented Dickey–Fuller test, we first detect the dates of price bubbles in China's two important agricultural commodity markets, namely corn and soybeans. Then, we use a penalized maximum likelihood estimation of a multinomial logistic model to estimate the contributing factors of price bubbles in both markets, respectively.

Findings

Results from the bubble detection indicate that price bubbles account for 5.48% (3.91%) of the studied periods for corn (soybeans). More importantly, we find that market liquidity and speculation have opposite effects on the occurrences of bubbles in the corn and soybeans market. World stocks-to-use and exchange rates affect the occurrences of bubbles in a different way for each commodity, as well. Price bubbles are more likely associated with strong economic activity, high interest rates and low inflation levels.

Originality/value

This is the first study considering commodity-specific features into the formation of price bubbles. Through accurately identifying the bubble dates and fixing the estimation bias of rare events models, this study enables us to obtain robust results for each commodity. The results imply that China's corn and soybeans market respond differently to the speculative activity and external shocks from international markets. Therefore, future policy regulations on commodity markets should focus on more commodity-specific factors when aiming at avoiding bubble occurrences.

Details

China Agricultural Economic Review, vol. 13 no. 1
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 13 April 2010

Sheeba Kapil and Kanwal Nayan Kapil

The Indian commodity market requires large investments and enhanced trading activity both in the national as well as the regional commodity markets. The participation of…

1499

Abstract

Purpose

The Indian commodity market requires large investments and enhanced trading activity both in the national as well as the regional commodity markets. The participation of non‐professional people trading commodity markets makes the market a risky venture. Non‐professional participants simply add to the volatility factor of the market. There is a dire need for professional experts who are able to provide advice on commodity trading and build commodity inclusive portfolios. Such professional awareness, expertise, and guidance in commodity trading can come from professional commodity traders called commodity trading advisors (CTAs). The purpose of this paper is to offer arguments and insights as to why the Indian commodity market needs the participation of the CTAs. The money brought in by CTA advised clients will add to the depth, liquidity, and trade which in turn will make commodity prices more efficient. As a regulatory measure, the Indian market too can adopt guidelines structured for CTAs by Commodity Future Trading Commission and National Futures Association. The CTAs can bring the Indian commodity market at par with developed commodity markets like Chicago Board of Trade.

Design/methodology/approach

The paper reviews and discusses the various issues related to CTAs applicability in India. The goal of the paper is to outline the need for allowing CTAs activity in Indian commodity market and discuses the key operational and policy considerations in developing the commodity market for CTAs in India.

Findings

The recent expansion of Indian commodity market has not been very structured. The market has expanded with the expansion in demand for commodities both in spot and derivative market. There have been constraints through policy restrictions and at the same time there has been an effort for liberalization of the commodity market to bring them at par with international commodity market. Of late, the Indian equity market has been very volatile. Participation of CTAs will provide much required downside protection to traditional portfolios and they will also provide the expertise in commodity derivative trading to participants and help build the commodity inclusive portfolios with better return and lesser risk.

Originality/value

This is the first paper that initiates thoughts on allowing CTAs to participate in the Indian commodity market. The paper builds on the concept that CTAs would add the desired price discovery, volume, and depth to the Indian commodity market. The Indian commodity market, despite being quite old, has recently broken free from the restrictive policies and has ushered into an era of initiates supporting commodity derivative market development. To the best of the authors' knowledge, there exists no literature on CTAs participation in India.

Details

International Journal of Emerging Markets, vol. 5 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 25 February 2022

Dimitrios Panagiotou and Alkistis Tseriki

The cross-quantilogram analysis is employed. The latter can assess the temporal association between two stationary time series at different parts of their joint distribution. Data…

Abstract

Purpose

The cross-quantilogram analysis is employed. The latter can assess the temporal association between two stationary time series at different parts of their joint distribution. Data are daily prices and trading volumes from the futures markets of five agricultural commodities, namely, corn, hard red wheat, oats, rice and soybeans.

Design/methodology/approach

The objective to the present work is to investigate for directional predictability between returns and volume (and vice versa) in the futures markets of agricultural commodities.

Findings

The empirical results reveal evidence, weak as well as strong, that extreme low values of returns are likely to lead high levels of volume. There is also weak evidence that extreme low values of volume are likely to precede high values of returns, except for the futures markets of oats where there is very strong evidence that low values of volume are likely to lead high values of returns. For the commodity of soybeans, there is very strong evidence that extreme high levels of volume are likely to lead high values of returns, but they are very short lived.

Research limitations/implications

Agricultural futures have been recently characterized by increased volatility leading hedgers to be looking for diversification. The present findings suggest that when price crashes occur, investors who suffer losses wish to sell, increasing this way the trading activity. Concurrently, the results reveal that extreme low levels of trading volume might signal a possible price turn around for traders.

Originality/value

This is the first study that employs the quantilogram approach in order to investigate for potential predictability from returns to volume and from volume to returns, in the futures markets of agricultural commodities.

Details

The Journal of Risk Finance, vol. 23 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 15 April 2019

Panos Fousekis and Vasilis Grigoriadis

This paper aims to investigate empirically the linkages between stock and commodity futures markets.

Abstract

Purpose

This paper aims to investigate empirically the linkages between stock and commodity futures markets.

Design/methodology/approach

It involves the application of a flexible copula approach to weekly total returns from the S&P 500 index and from three commodity sub-indices (agriculture, metals and energy) from 1995 to 2017.

Findings

Co-movement is by no means frequent and symmetric. It was predominantly zero before the last financial crisis, and since then, it is positive and asymmetric. The pattern of asymmetry is consistent with transmission of shocks under extreme negative shocks only. Recently, total returns of commodity futures are very poor. At the same time, commodity futures markets move in step (out of step) with stock markets when the latter plunge (rise), pointing to limited diversification benefits. These appear to justify the concerns of investors and researchers whether including commodities in a portfolio of assets is still a prudent investment strategy.

Originality/value

It is the only manuscript that combines a flexible copula approach and co-movement measurement along both the positive and negative diagonals. The findings are in sharp contrast with those reported by Delatte and Lopez (2013) and are very important for portfolio management.

Details

Studies in Economics and Finance, vol. 36 no. 2
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 16 February 2024

R.L. Manogna, Nishil Kulkarni and D. Akshay Krishna

The study endeavors to explore whether the financialization of agricultural commodities, traditionally viewed as a catalyst for price volatility, has any repercussions on food…

Abstract

Purpose

The study endeavors to explore whether the financialization of agricultural commodities, traditionally viewed as a catalyst for price volatility, has any repercussions on food security in BRICS economies.

Design/methodology/approach

The empirical analysis employs the examination of three agricultural commodities, namely wheat, maize and soybean. Utilizing data from the Chicago Board of Trade on futures trading for these commodities, we focus on parameters such as annual trading volume, annual open interest contracts and the ratio of annual trading volume to annual open interest contracts. The study spans the period 2000–2021, encompassing pre- and post-financial crisis analyses and specifically explores the BRICS countries namely the Brazil, Russia, India, China and South Africa. To scrutinize the connections between financialization indicators and food security measures, the analysis employs econometric techniques such as panel data regression analysis and a moderating effects model.

Findings

The results indicate that the financialization of agricultural products contributes to the heightened food price volatility and has adverse effects on food security in emerging economies. Furthermore, the study reveals that the impact of the financialization of agricultural commodities on food security was more pronounced in emerging nations after the global financial crisis of 2008 compared to the pre-crisis period.

Research limitations/implications

This paper seeks to draw increased attention to the financialization of agricultural commodities by presenting empirical evidence of its potential impact on food security in BRICS economies. The findings serve as a valuable guide for policymakers, offering insights to help them safeguard the security and availability of the world’s food supply.

Originality/value

Very few studies have explored the effect of financialization of agricultural commodities on food security covering a sample of developing economies, with sample period from 2000 to 2021, especially at the individual agriculture commodity level. Understanding the evolving effects of financialization is further improved by comparing pre and post-financial crisis times.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-0839

Keywords

21 – 30 of over 25000