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Causality Between Market Liquidity and Depth for Energy and Grains

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Author Info

  • Ramazan Sari

    (Department of Business Administration, Middle East Technical University)

  • Shawkat Hammoudeh

    (Lebow College of Business, Drexel University)

  • Chia-Lin Chang

    (Department of Applied Economics, National Chung Hsing University)

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)

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.kier.kyoto-u.ac.jp/DP/DP769.pdf
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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 769.

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Length: 43pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:kyo:wpaper:769

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

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Cited by:
  1. Walid Mensi & Shawkat Hammoudeh & Duc Khuong Nguyen & Seong-Min Yoon, 2014. "Dynamic spillovers among major energy and cereal commodity prices," Working Papers, Department of Research, Ipag Business School 2014-160, Department of Research, Ipag Business School.
  2. Chia-Lin Chang & Li-Hsueh Chen & Shawkat Hammoudeh & Michael McAleer, 2010. "Asymmetric Adjustments in the Ethanol and Grains Markets," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 10/78, University of Canterbury, Department of Economics and Finance.
  3. Diks, C.G.H. & Wolski, M., 2013. "Nonlinear Granger Causality: Guidelines for Multivariate Analysis," CeNDEF Working Papers 13-15, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  4. Zhang, Chuanguo & Chen, Xiaoqing, 2014. "The impact of global oil price shocks on China’s bulk commodity markets and fundamental industries," Energy Policy, Elsevier, Elsevier, vol. 66(C), pages 32-41.

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