The effect of futures markets on the stability of commodity prices

Jong, Johan de; Sonnemans, Joep; Tuinstra, Jan

doi:10.1016/j.jebo.2022.03.025

Cited by 8 publications

(2 citation statements)

References 45 publications

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“…Inconsistent with the U-shaped change in hedge ratios, hedging effectiveness has an advantage in the middle quantiles. Thus market effectiveness under average market conditions is better than under extreme market conditions, which is also in line with the futures market's goal of achieving market stability (De Jong et al, 2022;Mehlitz & Auer, 2021).…”

Section: Quantile Hedging Resultssupporting

confidence: 59%

A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions

Huang

Xiong

2023

Journal of Futures Markets

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Using a proposed quantile-based hedging analysis framework, this paper analyzes the hedging properties and portfolio performance of 15 commodities futures in China, especially under extreme market conditions. Quantile-onquantile regression results show that the dependency structures of most spot and futures prices exhibit an almost similar shape with positive coefficients, which indicates that most futures products are good hedges and safe havens for the corresponding spot prices. Quantile hedge ratios vary with the quantiles, displaying a U-shape, so the hedge ratios of most commodities should increase moderately in both bearish and bullish markets. As for portfolio performance, metal commodities perform best; agricultural commodities second best, and energy commodities relatively poorly. Out-of-sample quantile hedging results are consistent with in-sample results. Therefore, participating in the futures market can effectively manage risk. The premise is that investors pay attention to market dynamics and adjust their portfolios promptly.commodity futures, extreme market, quantile hedging, quantile-on-quantile regression, safe haven | INTRODUCTIONIn recent years, uncertainties such as COVID-19, the Russia-Ukraine war, and African Swine fever have led to dramatic volatility in international commodity prices (Ji et al., 2020;Panagiotou, 2021) and extreme market conditions occur frequently. The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell as low as −

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Section: Quantile Hedging Resultssupporting

confidence: 59%

A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions

Huang

Xiong

2023

Journal of Futures Markets

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“…In recent years, driven by various factors such as global liquidity surplus, high inflation, and geopolitical conflicts, the prices of grain futures have generally remained up, attracting substantial international capital into agricultural futures markets. The consequent excessive speculation magnifies the effect of price fluctuations (Zhong et al, 2004;Bonnier, 2021;Hirota et al, 2022), and the excess volatility in agricultural futures markets is expected to spill over into agricultural spot markets due to their close linkage (Huynh et al, 2020;De Jong et al, 2022), which may lead to limited price-discovery and risk-aversion functions of agricultural futures. Therefore, in the context of the Russia-Ukraine conflict, it is imperative to clarify the dependence structure within the international food market, assess the risks of the agricultural futures and spot markets, and investigate the risk spillovers between these markets for stabilizing the global food market, optimizing the global food governance system, and maintaining global food security.…”

Section: Introductionmentioning

confidence: 99%

International Comparison on the Application of Information Technology in High School Mathematics Textbooks

Zhou

2021

School Mathematics Textbooks in China

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Ultra-dense networks are widely regarded as a promising solution to explosively growing applications of Internet-of-Things (IoT) mobile devices (IMDs). However, complicated and severe interferences need to be tackled properly in such networks. To this end, both orthogonal multiple access (OMA) and non-orthogonal multiple access (NOMA) are utilized at first. Then, in order to attain a goal of green and secure computation offloading, under the proportional allocation of computational resources and the constraints of latency and security cost, joint device association, channel selection, security service assignment, power control and computation offloading are done for minimizing the overall energy consumed by all IMDs. It is noteworthy that multi-step computation offloading is concentrated to balance the network loads and utilize computing resources fully. Since the finally formulated problem is in a nonlinear mixed-integer form, it may be very difficult to find its closed-form solution. To solve it, an improved whale optimization algorithm (IWOA) is designed. As for this algorithm, the convergence, computational complexity and parallel implementation are analyzed in detail. Simulation results show that the designed algorithm may achieve lower energy consumption than other existing algorithms under the constraints of latency and security cost.

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An investigation of the price discovery role of futures markets: A dynamic time warping analysis of the United States corn markets

Miljkovic,

Vatsa,

Olson

2024

Agribusiness

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Futures markets are critical to price discovery and often dominate spot markets. We analyze the linkages between daily corn futures and spot prices in the United States using dynamic time warping. This nonparametric pattern recognition technique has several advantages over traditional time series methods. First, it can detect multiple changes in the lead‐lag associations between the two prices within short intervals; the duration with which one series leads or lags another is not assumed to be fixed. Second, the method can be applied to time series without regard to their stationarity properties. This greatly expands the scope of this method to accommodate a wide range of time series. Third, it lends itself well to studying small samples, which econometricians encounter routinely. Fourth, the results are presented intelligibly using intuitive visualizations. Our results show that futures markets are critical to price discovery; nevertheless, spot markets dominate futures markets intermittently. We discuss the results in detail, setting them in the proper context. [EconLit Citations: C14, C32, Q02, Q11].

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The effect of futures markets on the stability of commodity prices

Cited by 8 publications

References 45 publications

A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions

A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions

International Comparison on the Application of Information Technology in High School Mathematics Textbooks

An investigation of the price discovery role of futures markets: A dynamic time warping analysis of the United States corn markets

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