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Causality Between Market Liquidity and Depth for Energy and Grains

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Author Info

  • Ramazan Sari
  • Shawkat Hammoudeh
  • Chia-Lin Chang
  • Michael McAleer

    () (University of Canterbury)

Abstract

This paper examines the roles of futures prices of crude oil, gasoline, ethanol, corn, soybeans and sugar in the energy-grain nexus. It also investigates the own- and cross-market impacts for lagged grain trading volume and open interest in the energy and grain markets. According to the results, the conventional view, for which the impacts are from oil to gasoline to ethanol to grains in the energy-grain nexus, does not hold well in the long run because the oil price is influenced by gasoline, soybeans and oil. Moreover, gasoline is preceded by only the oil price and ethanol is not foreshadowed by any of the prices. However, in the short run, two-way feedback in both directions exists in all markets. The grain trading volume effect across oil and gasoline is more pronounced in the short run than the long run, satisfying both the overconfidence/disposition and new information hypotheses across markets. The results for the ethanol open interest shows that money flows out of this market in both the short and long run, but no results suggest across market inflows or outflows to the other grain markets.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1115.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 11/15.

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Length: 44 pages
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:cbt:econwp:11/15

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Keywords: Causality; market liquidity; depth; energy; grains;

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Cited by:
  1. Chang, Chia-Lin & Chen, Li-Hsueh & Hammoudeh, Shawkat & McAleer, Michael, 2012. "Asymmetric adjustments in the ethanol and grains markets," Energy Economics, Elsevier, vol. 34(6), pages 1990-2002.

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