IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v59y2018icp379-388.html
   My bibliography  Save this article

Toward generalization of futures contracts for raw materials: A probabilistic answer applied to metal markets

Author

Listed:
  • Fizaine, Florian

Abstract

In this paper, we aim at identifying root causes linked to presence or absence of futures contracts for raw materials. Unlike previous analyses focused on the success of futures contracts via exchange volume and open interest, we offer an alternative logit model applied to the presence or absence of futures contracts for 53 metal markets. We use different factors (price and physical quantities produced, geographical concentration…) and several combinations of variables in order to explore the root causes of futures contracts. The model shows both great explaining capability and a good prediction power which are robust to data resampling. According to the model, it is unlikely that minor metals successfully introduce futures contracts in the coming years. We also discuss the use and interest of this model by institutions and financial authorities devoted to the development of futures contracts for raw material markets.

Suggested Citation

  • Fizaine, Florian, 2018. "Toward generalization of futures contracts for raw materials: A probabilistic answer applied to metal markets," Resources Policy, Elsevier, vol. 59(C), pages 379-388.
    • Handle: RePEc:eee:jrpoli:v:59:y:2018:i:c:p:379-388
    DOI: 10.1016/j.resourpol.2018.08.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420718300977
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2018.08.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Brorsen, B. Wade & Fofana, N'Zue F., 2001. "Success And Failure Of Agricultural Futures Contracts," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(2), pages 1-17.
    3. Maxwell, Philip, 2015. "Transparent and opaque pricing: The interesting case of lithium," Resources Policy, Elsevier, vol. 45(C), pages 92-97.
    4. Fizaine, Florian, 2013. "Byproduct production of minor metals: Threat or opportunity for the development of clean technologies? The PV sector as an illustration," Resources Policy, Elsevier, vol. 38(3), pages 373-383.
    5. Telser, Lester G & Higinbotham, Harlow N, 1977. "Organized Futures Markets: Costs and Benefits," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 969-1000, October.
    6. Jacks, David S., 2007. "Populists versus theorists: Futures markets and the volatility of prices," Explorations in Economic History, Elsevier, vol. 44(2), pages 342-362, April.
    7. Telser, Lester G, 1981. "Why There Are Organized Futures Markets," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 1-22, April.
    8. Mark J. Powers, 1967. "Effects of Contract Provisions on the Success of a Futures Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 49(4), pages 833-843.
    9. Dennis W. Carlton, 1984. "Futures markets: Their purpose, their history, their growth, their successes and failures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 4(3), pages 237-271, September.
    10. Miffre, Joëlle & Brooks, Chris, 2013. "Do long-short speculators destabilize commodity futures markets?," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 230-240.
    11. Dwight R. Sanders & Mark R. Manfredo, 2002. "The white shrimp futures market: Lessons in contract design and marketing," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 505-522.
    12. Haase, Marco & Seiler Zimmermann, Yvonne & Zimmermann, Heinz, 2016. "The impact of speculation on commodity futures markets – A review of the findings of 100 empirical studies," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 1-15.
    13. Hache, Emmanuel & Lantz, Frédéric, 2013. "Speculative trading and oil price dynamic: A study of the WTI market," Energy Economics, Elsevier, vol. 36(C), pages 334-340.
    14. Arık, Evren & Mutlu, Elif, 2014. "Chinese steel market in the post-futures period," Resources Policy, Elsevier, vol. 42(C), pages 10-17.
    15. World Bank, 2009. "Global Economic Prospects 2009 : Commodities at the Crossroads," World Bank Publications - Books, The World Bank Group, number 2581, December.
    16. Fizaine, Florian, 2015. "Minor metals and organized markets: News highlights about the consequences of establishing a futures market in a thin market with a dual trading price system," Resources Policy, Elsevier, vol. 46(P2), pages 59-70.
    17. Gray, Roger W., 1960. "The Characteristic Bias in Some Thin Futures Markets," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 1(3), pages 1-17.
    18. Sarahelen Thompson & Philip Garcia & Lynne Dallafior Wildman, 1996. "The demise of the high fructose corn syrup futures contract: A case study," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(6), pages 697-724, September.
    19. Redlinger, Michael & Eggert, Roderick, 2016. "Volatility of by-product metal and mineral prices," Resources Policy, Elsevier, vol. 47(C), pages 69-77.
    20. Hegde, S. Aaron, 2004. "An Economic History Of The Failure Of Broiler Futures," 2004 Annual meeting, August 1-4, Denver, CO 20397, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kim, Kihyung, 2020. "Jointly produced metal markets are endogenously unstable," Resources Policy, Elsevier, vol. 66(C).
    2. Jingjing Wang & Xiaoyang Wang, 2023. "Why is water illiquid?: The NQH2O water index futures," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(1), pages 602-621, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Quintino, Derick David & David, Sergio Adriani, 2013. "Quantitative analysis of feasibility of hydrous ethanol futures contracts in Brazil," Energy Economics, Elsevier, vol. 40(C), pages 927-935.
    2. Fizaine, Florian, 2015. "Minor metals and organized markets: News highlights about the consequences of establishing a futures market in a thin market with a dual trading price system," Resources Policy, Elsevier, vol. 46(P2), pages 59-70.
    3. Coleman, Andrew, 2018. "Forest-based carbon sequestration, and the role of forward, futures, and carbon-lending markets: A comparative institutions approach," Journal of Forest Economics, Elsevier, vol. 33(C), pages 95-104.
    4. Shammugam, Shivenes & Rathgeber, Andreas & Schlegl, Thomas, 2019. "Causality between metal prices: Is joint consumption a more important determinant than joint production of main and by-product metals?," Resources Policy, Elsevier, vol. 61(C), pages 49-66.
    5. Shao, Liuguo & Hu, Wenqin & Yang, Danhui, 2020. "The price relationship between main-byproduct metals from a multiscale nonlinear Granger causality perspective," Resources Policy, Elsevier, vol. 69(C).
    6. Jingjing Wang & Xiaoyang Wang, 2023. "Why is water illiquid?: The NQH2O water index futures," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(1), pages 602-621, March.
    7. Kennya B. Siqueira & Carlos Arthur B. da Silva & Danilo R.D. Aguiar, 2008. "Viability of introducing milk futures contracts in Brazil: a multiple criteria decision analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 24(4), pages 491-509.
    8. Skully, David W., 1999. "The Economics Of Trq Administration," Working Papers 14584, International Agricultural Trade Research Consortium.
    9. Sykuta, Michael E., 1996. "Futures trading and supply contracting in the oil refining industry," Journal of Corporate Finance, Elsevier, vol. 2(4), pages 317-334, July.
    10. Raymond M. Leuthold, 1994. "Evaluating Futures Exchanges in Liberalising Economies," Development Policy Review, Overseas Development Institute, vol. 12(2), pages 149-164, June.
    11. Fabre, Adrien & Fodha, Mouez & Ricci, Francesco, 2020. "Mineral resources for renewable energy: Optimal timing of energy production," Resource and Energy Economics, Elsevier, vol. 59(C).
    12. André Månberger, 2021. "Reduced Use of Fossil Fuels can Reduce Supply of Critical Resources," Biophysical Economics and Resource Quality, Springer, vol. 6(2), pages 1-15, June.
    13. Bharat Ramaswami & Jatinder Bir Singh, 2006. "Underdeveloped spot markets and futures trading: The Soya Oil exchange in India," Discussion Papers 06-03, Indian Statistical Institute, Delhi.
    14. Pirrong, Craig, 2000. "A Theory of Financial Exchange Organization," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 437-471, October.
    15. Stückler, Maria, 2002. "Handel auf Terminkontraktmärkten," Department of Economics Working Paper Series 80, WU Vienna University of Economics and Business.
    16. Cagatay Basarir & Mehmet Fatih Bayramoglu, 2018. "Global Macroeconomic Determinants of the Domestic Commodity Derivatives," Contributions to Economics, in: Hasan Dincer & Ümit Hacioglu & Serhat Yüksel (ed.), Global Approaches in Financial Economics, Banking, and Finance, chapter 0, pages 331-349, Springer.
    17. Algieri, Bernardina & Leccadito, Arturo, 2019. "Price volatility and speculative activities in futures commodity markets: A combination of combinations of p-values test," Journal of Commodity Markets, Elsevier, vol. 13(C), pages 40-54.
    18. 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.
    19. Thompson, Sarahelen R. & Kunda, Eugene L., 2000. "The Role Of Organized Exchanges And Standardized Contracts In Marketing New Commodities," 2000 Producer Marketing and Risk Management Conference, January 13-14, Orlando, FL 19575, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Demirer, Rıza & Lee, Hsiang-Tai & Lien, Donald, 2015. "Does the stock market drive herd behavior in commodity futures markets?," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 32-44.

    More about this item

    Keywords

    Financialization; Futures contract; Raw materials; Logit model; Metals;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:59:y:2018:i:c:p:379-388. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.