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Does Futures Price Volatility Differ Across Delivery Horizon?

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  • Karali, Berna
  • Dorfman, Jeffrey H.
  • Thurman, Walter N.

Abstract

We study the difference in the volatility dynamics of CBOT corn, soybeans, and oats futures prices across different delivery horizons via the smoothed Bayesian estimator of Karali, Dorfman, and Thurman (2010). We show that the futures price volatilities in these markets are affected by the inventories, time to delivery, and the crop progress period. Some of these effects vary across delivery horizons. Further, it is shown that the price volatility is higher before the harvest starts in most of the cases compared to the volatility during the planting period. These results have implications for hedging, options pricing, and the setting of margin requirements.

Suggested Citation

  • Karali, Berna & Dorfman, Jeffrey H. & Thurman, Walter N., 2009. "Does Futures Price Volatility Differ Across Delivery Horizon?," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53036, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nccc09:53036
    DOI: 10.22004/ag.econ.53036
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    References listed on IDEAS

    as
    1. David A. Hennessy & Thomas I. Wahl, 1996. "The Effects of Decision Making on Futures Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 591-603.
    2. Nikolaos T. Milonas, 1986. "Price variability and the maturity effect in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 6(3), pages 443-460, September.
    3. Berna Karali & Walter N. Thurman, 2009. "Announcement effects and the theory of storage: an empirical study of lumber futures," Agricultural Economics, International Association of Agricultural Economists, vol. 40(4), pages 421-436, July.
    4. Aaron Smith, 2005. "Partially overlapping time series: a new model for volatility dynamics in commodity futures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(3), pages 405-422.
    5. Berna Karali & Jeffrey H. Dorfman & Walter N. Thurman, 2010. "Do volatility determinants vary across futures contracts? Insights from a smoothed Bayesian estimator," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(3), pages 257-277, March.
    6. Dale J. Poirier, 1995. "Intermediate Statistics and Econometrics: A Comparative Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161494, December.
    7. Phil L. Colling & Scott H. Irwin, 1990. "The Reaction of Live Hog Futures Prices to USDA Hogs and Pigs Reports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 84-94.
    8. Seung‐Ryong Yang & B. Wade Brorsen, 1993. "Nonlinear dynamics of daily futures prices: Conditional heteroskedasticity or chaos?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(2), pages 175-191, April.
    9. Chatrath, Arjun & Adrangi, Bahram & Dhanda, Kanwalroop Kathy, 2002. "Are commodity prices chaotic?," Agricultural Economics, Blackwell, vol. 27(2), pages 123-137, August.
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    Cited by:

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    2. Ergen, Ibrahim & Rizvanoghlu, Islam, 2016. "Asymmetric impacts of fundamentals on the natural gas futures volatility: An augmented GARCH approach," Energy Economics, Elsevier, vol. 56(C), pages 64-74.

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