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Hoarding the Herd: The Convenience of Productive Stocks

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  • Frank Asche
  • Atle Oglend
  • Dengjun Zhang

Abstract

This paper investigates the convenience yield that emerges in markets with productive stocks. We isolate the economic fundamentals giving rise to the yield, and show how these map to the empirical convenience yield measure. A model for price dynamics is derived from an economic model for optimal stock levels. We show how the price process reduces to a simple non‐linear first‐order Markov process. The model is estimated for the Norwegian market for farmed salmon by Generalized Methods of Moments, where stock growth is approximated by sea‐water temperature. Our estimation result supports the theorized role of stock growth as a convenience yield component. Our results are relevant for the functioning of futures markets for commodities such as fish and other animal production where systematic stock growth affects the term structure. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:679–694, 2015

Suggested Citation

  • Frank Asche & Atle Oglend & Dengjun Zhang, 2015. "Hoarding the Herd: The Convenience of Productive Stocks," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(7), pages 679-694, July.
    • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:7:p:679-694
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    Cited by:

    1. Atle Oglend & Hans‐Martin Straume, 2020. "Futures market hedging efficiency in a new futures exchange: Effects of trade partner diversification," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 617-631, April.
    2. Misund, Bård, 2018. "Common and fundamental risk factors in shareholder returns of Norwegian salmon producing companies," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 19-30.
    3. Xie, Yang & Zilberman, David, 2015. "Water-Storage Capacities versus Water-Use Efficiency: Substitutes or Complements?," 2015 Conference, August 9-14, 2015, Milan, Italy 211894, International Association of Agricultural Economists.
    4. Atle Oglend & Vesa-Heikki Soini, 2020. "Equilibrium Working Curves with Heterogeneous Agents," Computational Economics, Springer;Society for Computational Economics, vol. 56(2), pages 355-372, August.
    5. Asche, Frank & Oglend, Atle, 2016. "The relationship between input-factor and output prices in commodity industries: The case of Norwegian salmon aquaculture," Journal of Commodity Markets, Elsevier, vol. 1(1), pages 35-47.
    6. Asche, Frank & Misund, Bård & Oglend, Atle, 2016. "Determinants of the Atlantic salmon futures risk premium," Journal of Commodity Markets, Elsevier, vol. 2(1), pages 6-17.
    7. Atle Oglend & Frank Asche & Hans‐Martin Straume, 2022. "Estimating Pricing Rigidities in Bilateral Transactions Markets," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 209-227, January.
    8. Asche, Frank & Misund, Bard & Oglend, Atle, 2015. "The Spot-Forward Relationship in the Atlantic Salmon Market," UiS Working Papers in Economics and Finance 2015/16, University of Stavanger.
    9. Asche, Frank & Misund, Bard & Oglend, Atle, 2015. "Production Risk and the Futures Price Risk Premium?," UiS Working Papers in Economics and Finance 2015/13, University of Stavanger.
    10. Dahl, Roy Endré & Jonsson, Erlendur, 2018. "Volatility spillover in seafood markets," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 44-59.
    11. Oglend, Atle & Kleppe, Tore Selland, 2017. "On the behavior of commodity prices when speculative storage is bounded," Journal of Economic Dynamics and Control, Elsevier, vol. 75(C), pages 52-69.
    12. Asche, Frank & Misund, Bard, 2015. "Hedging Efficiency of Atlantic Salmon Futures," UiS Working Papers in Economics and Finance 2015/12, University of Stavanger.

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