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Price Discovery In Thinly Traded Markets: Cash And Futures Relationships In Brazilian Agricultural Futures Markets

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  • Mattos, Fabio
  • Garcia, Philip

Abstract

This study investigates the relationship between cash and futures prices in the Brazilian agricultural market, focusing on the effects of trading activity on the price discovery mechanism of futures markets. The results are mixed, but several points begin to emerge. In general, higher trading activity is linked to the presence of long-run equilibrium relationships between cash and futures prices. In these cases, futures prices appear to play a more dominant role in the pricing process. In more lightly traded markets, neither long-run relationships nor short-run leads and lags can be found. Where short-run interactions exist, they are simultaneous in nature but weak. Overall, our findings suggest that the level of market activity necessary to develop interactive cash and futures markets is surprisingly small.

Suggested Citation

  • Mattos, Fabio & Garcia, Philip, 2004. "Price Discovery In Thinly Traded Markets: Cash And Futures Relationships In Brazilian Agricultural Futures Markets," 2004 Conference, April 19-20, 2004, St. Louis, Missouri 19019, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:ncrfou:19019
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    Cited by:

    1. Chang, Chia-Lin & Chen, Li-Hsueh & Hammoudeh, Shawkat & McAleer, Michael, 2012. "Asymmetric adjustments in the ethanol and grains markets," Energy Economics, Elsevier, vol. 34(6), pages 1990-2002.
    2. Sari, Ramazan & Hammoudeh, Shawkat & Chang, Chia-Lin & McAleer, Michael, 2012. "Causality between market liquidity and depth for energy and grains," Energy Economics, Elsevier, vol. 34(5), pages 1683-1692.
    3. Kushankur Dey & Debasish Maitra, 2012. "Price discovery in Indian commodity futures market: an empirical exercise," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 5(1), pages 68-87.
    4. Xu, Xiaojie, 2014. "Price Discovery in U.S. Corn Cash and Futures Markets: The Role of Cash Market Selection," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169809, Agricultural and Applied Economics Association.
    5. Ling-Yun He & Wen-Si Xie, 2012. "Who has the final say?: Market power versus price discovery in China's sugar spot and futures markets," China Agricultural Economic Review, Emerald Group Publishing, vol. 4(3), pages 379-390, August.
    6. Andersson, Camilla & Bezabih, Mintewab & Mannberg, Andrea, 2017. "The Ethiopian Commodity Exchange and spatial price dispersion," Food Policy, Elsevier, vol. 66(C), pages 1-11.
    7. Elumalai, K. & Rangasamy, N. & Sharma, R.K., 2009. "Price Discovery in India’s Agricultural Commodity Futures Markets," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 64(3).

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    Keywords

    Marketing;

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