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Liquidity costs in emerging corn futures markets

Author

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  • Tonin, Julyerme Matheus
  • Costa Junior, Geraldo
  • Gomes Martines Filho, João

Abstract

Objective: The present study estimates the liquidity cost of the corn future contract traded on B3 (formerly BM&FBovespa) and compare it to the CME corn future contract, through five implicit bid-ask spread measures. Originality/value: The market microstructure approach, with its focus on high frequency data, reveals characteristics of the emerging agricultural markets (also known as thin markets), which were not evident in studies with daily frequency data. Design/methodology/approach: To analyze the performance of five cost estimators, the data used in our analysis consists of intraday series of future contracts of B3 and CME from September 1, 2015, to August 30, 2016. The methodology adopted includes these estimators: Roll model (1984); Model of Thompson & Waller (1987) model of Choi, Salandro & Shastri (1988); Model of Chu, Ding & Pyun (1996) and the model of Wang, Yau & Baptiste (1997). Findings: The liquidity cost is lower in CME's future corn market than in B3, and the estimated cost of liquidity in CME's future corn market is 2 to 3 cents (in R$/60-kgbag) while at BM & F the cost is 6 to 16 cents (in R$/60-kgbag).

Suggested Citation

  • Tonin, Julyerme Matheus & Costa Junior, Geraldo & Gomes Martines Filho, João, 2017. "Liquidity costs in emerging corn futures markets," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 18(6), pages 201-223.
    • Handle: RePEc:zbw:espost:342681
    DOI: 10.1590/1678-69712017/administracao.v18n6p201-223
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    References listed on IDEAS

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    1. George H. K. Wang & Jot Yau, 2000. "Trading volume, bid–ask spread, and price volatility in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(10), pages 943-970, November.
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