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The relationship between spot and futures prices: An empirical analysis

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  • Gulley, Andrew
  • Tilton, John E.

Abstract

In their recent article, Tilton et al. (2011, Resour. Policy, 36, 187–195) contend on the basis of conceptual and theoretical arguments that spot and futures prices for metals and other commodities should be closely correlated during periods of strong contango and much less correlated during periods of backwardation or weak contango. If true, this hypothesis implies that speculation and investor demand, most of which takes place on futures markets, should affect spot prices much less or not at all during periods of backwardation or weak contango.

Suggested Citation

  • Gulley, Andrew & Tilton, John E., 2014. "The relationship between spot and futures prices: An empirical analysis," Resources Policy, Elsevier, vol. 41(C), pages 109-112.
    • Handle: RePEc:eee:jrpoli:v:41:y:2014:i:c:p:109-112
    DOI: 10.1016/j.resourpol.2014.03.005
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    References listed on IDEAS

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    1. Östensson, Olle, 2011. "Comment: Investor demand and spot commodity prices," Resources Policy, Elsevier, vol. 36(4), pages 372-374.
    2. Tilton, John E. & Humphreys, David & Radetzki, Marian, 2012. "Investor demand and spot commodity prices: Reply," Resources Policy, Elsevier, vol. 37(3), pages 397-399.
    3. Tilton, John E. & Humphreys, David & Radetzki, Marian, 2011. "Investor demand and spot commodity prices," Resources Policy, Elsevier, vol. 36(3), pages 187-195, September.
    4. Tilton, John E. & Humphreys, David & Radetzki, Marian, 2012. "Investor demand and spot commodity prices: Reply 2," Resources Policy, Elsevier, vol. 37(3), pages 403-404.
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    Cited by:

    1. Duc Huynh, Toan Luu & Burggraf, Tobias & Nasir, Muhammad Ali, 2020. "Financialisation of natural resources & instability caused by risk transfer in commodity markets," Resources Policy, Elsevier, vol. 66(C).
    2. Go, You-How & Lau, Wee-Yeap, 2017. "Investor demand, market efficiency and spot-futures relation: Further evidence from crude palm oil," Resources Policy, Elsevier, vol. 53(C), pages 135-146.
    3. Seungho Baek & Mina Glambosky & Seok Hee Oh & Jeong Lee, 2020. "Machine Learning and Algorithmic Pairs Trading in Futures Markets," Sustainability, MDPI, vol. 12(17), pages 1-24, August.
    4. Yanhui Chen & Jinrong Lu & Mengmeng Ma, 2022. "How Does Oil Future Price Imply Bunker Price—Cointegration and Prediction Analysis," Energies, MDPI, vol. 15(10), pages 1-17, May.
    5. Guo, Yaoqi & Yao, Shanshan & Cheng, Hui & Zhu, Wensong, 2020. "China's copper futures market efficiency analysis: Based on nonlinear Granger causality and multifractal methods," Resources Policy, Elsevier, vol. 68(C).
    6. Xue Jin & Shiwei Zhou & Kedong Yin & Mingzhen Li, 2021. "Relationships between Copper Futures Markets from the Perspective of Jump Diffusion," Mathematics, MDPI, vol. 9(18), pages 1-25, September.
    7. Rubaszek Michal & Karolak Zuzanna & Kwas Marek & Uddin Gazi Salah, 2020. "The role of the threshold effect for the dynamics of futures and spot prices of energy commodities," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(5), pages 1-20, December.
    8. You-How Go & Wee-Yeap Lau, 2017. "The Relationship of Crude Palm Oil Spot-Futures under Inflationary Expectation in Gold Market," Capital Markets Review, Malaysian Finance Association, vol. 25(1), pages 43-62.
    9. Alexandre Vasconcelos Lima & Rogério Boueri Miranda & Mathias Schneid Tessmann, 2022. "Evaluation of the Future Price of Brazilian Commodities as a Predictor of the Price of the Spot Market," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(4), pages 1-51, April.
    10. Fernandez, Viviana, 2016. "Further evidence on the relationship between spot and futures prices," Resources Policy, Elsevier, vol. 49(C), pages 368-371.
    11. Mayer, Herbert & Rathgeber, Andreas & Wanner, Markus, 2017. "Financialization of metal markets: Does futures trading influence spot prices and volatility?," Resources Policy, Elsevier, vol. 53(C), pages 300-316.
    12. You-How Go & Wee-Yeap Lau, 2019. "Palm oil spot-futures relation: Evidence from unrefined and refined products," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(3), pages 133-142.
    13. Rubaszek, Michał & Uddin, Gazi Salah, 2020. "The role of underground storage in the dynamics of the US natural gas market: A threshold model analysis," Energy Economics, Elsevier, vol. 87(C).
    14. Yu, Hui & Ding, Yinghui & Sun, Qingru & Gao, Xiangyun & Jia, Xiaoliang & Wang, Xinya & Guo, Sui, 2021. "Multi-scale comovement of the dynamic correlations between copper futures and spot prices," Resources Policy, Elsevier, vol. 70(C).
    15. Jia, Jian & Kang, Sang Baum, 2022. "Do the basis and other predictors of futures return also predict spot return with the same signs and magnitudes? Evidence from the LME," Journal of Commodity Markets, Elsevier, vol. 25(C).
    16. Zhu, Yongguang & Xu, Deyi & Cheng, Jinhua & Ali, Saleem Hassan, 2018. "Estimating the impact of China's export policy on tin prices: a mode decomposition counterfactual analysis method," Resources Policy, Elsevier, vol. 59(C), pages 250-264.
    17. Hsu, Chih-Hsiang, 2021. "The predictability of the return correlation of futures with different expirations in the Chinese futures market," Resources Policy, Elsevier, vol. 74(C).
    18. Marek Kwas & Michał Rubaszek, 2021. "Forecasting Commodity Prices: Looking for a Benchmark," Forecasting, MDPI, vol. 3(2), pages 1-13, June.
    19. Fernandez, Viviana, 2016. "Futures markets and fundamentals of base metals," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 215-229.

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    More about this item

    Keywords

    Commodity prices; Investor demand and stocks; Speculation; Strong and weak contango; Spot and futures markets; Copper;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General
    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction

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