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The Theory of Storage and Price Dynamics of Agricultural Commodity Futures: the Case of Corn and Wheat

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  • Guillermo Benavides Perales

    ()
    (Banco de Mexico)

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    Abstract

    Using a restricted version of the BEKK model it is tested an implication of the theory of storage that supply-and-demand fundamentals affect the price dynamics of agricultural commodities. The commodities under analysis are corn and wheat. An interest-storage-adjusted-spread was used as a proxy variable for supply-and-demand fundamentals to test the aforementioned implication for both commodities. It is also tested the Samuelson hypothesis that spot prices have higher volatility than futures prices. It is found that the interest-storage-adjusted-spread has had a statistically significant positive influence on the spot and futures returns for both commodities. Likewise, the results also show that spot price returns have higher volatility compared to futures price returns which is consistent with the Samuelson hypothesis. The results of the aforementioned tests are consistent with both theories and with the existing literature related to commodity futures.

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    File URL: http://www.economia.uanl.mx/revistaensayos/xxix/1/benavides-the-theory-of-storage.pdf
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    Bibliographic Info

    Article provided by Universidad Autonoma de Nuevo Leon, Facultad de Economia in its journal Ensayos Revista de Economia.

    Volume (Year): XXIX (2010)
    Issue (Month): 1 (May)
    Pages: 1-22

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    Handle: RePEc:ere:journl:v:xxix:y:2010:i:1:p:1-22

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    Related research

    Keywords: Agricultural commodities; BEKK model; multivariate GARCH; Samuelson hypothesis; theory of storage;

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    Cited by:
    1. Jean-François Carpantier & Arnaud Dufays, 2013. "Commodities Inventory Effect," CREA Discussion Paper Series 13-07, Center for Research in Economic Analysis, University of Luxembourg.
    2. CARPANTIER, Jean-François & DUFAYS, Arnaud, 2012. "Commodities volatility and the theory of storage," CORE Discussion Papers 2012037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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