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Changes in Liquidity,Cash Market Activity, and Futures Market

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  • Mattos, Fabio
  • Garcia, Philip

Abstract

This paper describes developments in the Brazilian live cattle market in the last decade, which resulted in an almost tenfold increase in futures trading, and investigates their effects on futures market’s price discovery and risk transfer functions. Higher trading volume appears to have modestly reinforced the long-run relationship between spot and futures markets, strengthened the role of futures market in the pricing process, and led to a more rapid transmission of market information between spot and futures markets. In terms of risk transfer, the results provide little evidence that the live cattle futures contract offers effective hedging opportunities, either under low or high trading volume. The findings are consistent with previous studies in the sense that even low trading volume is enough to establish links between spot and futures markets. However, the absence of hedging opportunities when futures trading increases was somewhat surprising and raises questions for future research.

Suggested Citation

  • Mattos, Fabio & Garcia, Philip, 2011. "Changes in Liquidity,Cash Market Activity, and Futures Market," 2011 Conference, April 18-19, 2011, St. Louis, Missouri 285351, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nccc11:285351
    DOI: 10.22004/ag.econ.285351
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