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Measuring price discovery in the European wheat market using the partial cointegration approach

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  • Teresa Vollmer
  • Helmut Herwartz
  • Stephan von Cramon-Taubadel

Abstract

Understanding price discovery in agricultural spot and futures markets is important for market participants and policy makers, because it can contribute to better management decisions and more informed policy debates on market regulation. Combining partial cointegration with state space modelling, we generate time-varying price discovery metrics for the European wheat market that allow for shifts in the long-run relationship. We find that the futures market dominates price discovery in terms of efficiency, but that this dominance is reduced in phases of higher price volatility. We find evidence of persistent shocks in the long-run relationship between spot and futures prices that appear to be related to variations in the quality of the wheat harvest, and to the concatenation of the futures prices.

Suggested Citation

  • Teresa Vollmer & Helmut Herwartz & Stephan von Cramon-Taubadel, 2020. "Measuring price discovery in the European wheat market using the partial cointegration approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(3), pages 1173-1200.
    • Handle: RePEc:oup:erevae:v:47:y:2020:i:3:p:1173-1200.
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    Cited by:

    1. Heigermoser, Maximilian, 2023. "The rapid rise of Russia's wheat exports: Price formation, spot-futures relations and volatility effects," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 100, number 100.
    2. repec:zbw:iamost:334357 is not listed on IDEAS
    3. Hsiu-Chuan Lee & Donald Lien & Her-Jiun Sheu, 2023. "Hedging performance of volatility index futures: a partial cointegration approach," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 265-294, July.
    4. Qianqian Mao & Jens-Peter Loy & Thomas Glauben & Yanjun Ren, . "Are futures markets functioning well for agricultural perishables? Evidence from China's apple futures market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 0.
    5. Zhuo Chen & Bo Yan & Hanwen Kang & Liyu Liu, 2023. "Asymmetric price adjustment and price discovery in spot and futures markets of agricultural commodities," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 139-162, February.
    6. Qianqian Mao & Jens-Peter Loy & Thomas Glauben & Yanjun Ren, 2023. "Are futures markets functioning well for agricultural perishables? Evidence from China's apple futures market," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(12), pages 471-484.
    7. Yali Mu & Stephan von Cramon‐Taubadel, 2022. "Estimating dynamic market efficiency frontiers," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(3), pages 633-653, September.
    8. Heigermoser, Maximilian, 2023. "The rapid rise of Russia's wheat exports: Price formation, spot-futures relations and volatility effects," Studies on the Agricultural and Food Sector in Transition Economies 334357, Institute of Agricultural Development in Transition Economies (IAMO).

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