Price discovery in commodity derivatives: Speculation or hedging?

Bohmann, Marc; Michayluk, David; Patel, Vinay

doi:10.1002/fut.22021

Cited by 29 publications

(18 citation statements)

References 46 publications

(107 reference statements)

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“…Insider trading has been a topic of interest for many researchers and it has been found that insider trading reduces liquidity and increases trading costs [8][9][10][11][12]. Also, there are studies (Sahoo and Kumar; Xiao et al) that are focused on the price discovery in the commodity futures market with mixed findings [13][14][15][16][17][18]. Researchers (De Angelis and Ravid) believe that hedging of commodity output and hedging of commodity input are different [19].…”

Section: Methodological Foundationsmentioning

confidence: 99%

Influence of speculative operations on the investment capital: Anempirical analysis of capital markets

Slobodianyk

Abuselidze

2021

E3S Web Conf.

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The article is devoted to substantiation of significance of speculative operations and follows the goal to study their condition and development. The purpose of this article is to reveal the essence of the speculative component of the movement of investment capital in stock exchange. It is substantiated that existence and stability of the securities market plays a significant role in development of financial market, which in turn becomes a key element in the mechanism of economy. The authors emphasize that the liquid market continues to function even with a large number of economic agents while price fluctuation of securities have a little change. It has been established that speculation can be carried out on the stock exchange both using cash and in futures transactions. However, operating with cash transactions has fewer combinations and in general less profitable, thus the main arena of speculators becomes the market of future transactions. It has been proven that speculative profits are possible during both “bullish games” and in shorting’s, thus becoming an important tool for additional attraction of investments. Consequently, speculations have a crucial role in achieving a balance between capital market participants.

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Section: Methodological Foundationsmentioning

confidence: 99%

Influence of speculative operations on the investment capital: Anempirical analysis of capital markets

Slobodianyk

Abuselidze

2021

E3S Web Conf.

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“…Zhong et al (2004) initiated that the futures market in Mexico is considered as a suitable price discovery vehicle and a source of instability for the spot market. The studies of Bohmann et al (2018), Bohl et al (2019) examined the role of speculation in the price discovery process and found that speculation is a significant element in commodity derivatives to manage price instability. Yang et al (2001) prompted that asset storability may not affect the co-integration of the futures market in predicting cash prices, but it may affect the magnitude of bias of futures market estimates.…”

Section: Review Of Literaturementioning

confidence: 99%

Price discovery and market efficiency of cardamom in India

Vijayakumar¹

2021

XJM

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Purpose Transparent and fair price discovery is essential to commodity market participants in the trade value chain for competitive benefit. The purpose of this paper is to investigate the price discovery of Indian cardamom at e-auction, spot and futures markets in addition to the existence of the day of the week effect at e-auction apart from exploring a novel price risk management framework. Design/methodology/approach This study used Johansen co-integration, vector error correction model, Granger causality and regression with dummy variables to understand a day of the week effect in high-value agri-commodity of cardamom e-auction prices. These price data were based on authenticated sources of Spices Board India and Multi Commodity Exchange of India Ltd. Findings The statistical results indicate price discovery exists in the e-auction market and it leads to spot and futures prices. cardamom e-auction prices are negatively related to cardamom futures and positively related to spot prices. It also finds the non-existence of the day of the week effect in the high-value cardamom e-auction system in India. The study revealed that a cardamom e-auction is more active in price discovery than a cardamom futures contract. Research limitations/implications These results shall facilitate policymakers to explore intervention of online forward market mechanism at the national level to ensure price discovery and market efficiency. However, the study did not explore reasons for the non-equilibrium of a cardamom futures contract with spot and e-auction market. Practical implications The results of this study are useful in understanding the price discovery of cardamom e-auction and its role in the spot and futures market. Cardamom price discovery depends upon the e-auction system; any change of auction policy shall be binding on Indian cardamom prices. The introduction of an online forward market mechanism as described in the paper shall facilitate price risk management apart from improving the efficiency of price discovery. Originality/value This is the first study considering cardamom e-auction, spot and futures prices in the price discovery process in India. Statistical results of a day of the week effect clearly show no significant volatility of cardamom prices during the week. Besides, this study did not find the role of cardamom futures contracts intended to serve the economic function of price discovery and price risk management. Hence, suggests policy intervention for implementing an online Forward Market mechanism for Indian cardamom to ensure market efficiency and manage price risk.

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“…Many works of foreign and domestic scientists have been devoted to issues related to the exchange trade in commodity derivatives. In particular, foreign scientists and economists G. [21][22][23][24][25][26][27]. The authors (De Angelis and Ravid, 2016) prove that the hedging of commodity output is different from the hedging of commodity input [28].…”

Section: Introductionmentioning

confidence: 99%

Use of hedging instruments on example of grain market

Abuselidze

2021

20th International Scientific Conference Engineering for Rural Development Proceedings

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The article proves that the discrepancy of regulatory mechanisms of market relations subjects is also typical for the agricultural sector of the economy of Georgia. The problem of price formation for agricultural products is particularly acute. The research determines the need for a scientific approach to solving the issues of improving the domestic commodity market in order to ensure its adequacy for full-scale integration into the world economic space. The theoretical and methodological basis of the research is a systematic approach to the study of the fundamental provisions of the economic theory, risk management theory regarding the problems of using exchange instruments in the agricultural market of Georgia in order to minimize the risks of agricultural products. The authors have identified the main tools for protection against price fluctuations in the exchange agricultural corn market, analysed the ways to use hedging to minimize risks. The main tools of protection against price fluctuations in the exchange-traded agricultural corn market are highlighted, and the ways of using hedging to minimize risks are analysed. Since seasonality, fluctuations in production volumes, and natural and climatic conditions have a great influence on the formation of prices for agricultural products, the combined impact of these factors increases the risks of agricultural business, overcoming their negative impact on business activities in agriculture and determines the need to apply progressive elements of market regulation, including hedging tools.

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Price discovery in commodity derivatives: Speculation or hedging?

Cited by 29 publications

References 46 publications

Influence of speculative operations on the investment capital: Anempirical analysis of capital markets

Influence of speculative operations on the investment capital: Anempirical analysis of capital markets

Price discovery and market efficiency of cardamom in India

Use of hedging instruments on example of grain market

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