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Comparison of Liquidity Costs Between the Kansas City and Chicago Wheat Futures Contracts

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  • Thompson, Sarahelen
  • Eales, James S.
  • Seibold, David

Abstract

The objectives of this study were to: (a) quantify differences in liquidity costs between Kansas City and Chicago wheat futures contracts, and (b) identify the factors which influence liquidity in these two markets. Regression results suggest that there are significant differences in liquidity costs between Chicago and Kansas City which are in part due to the lower trading volume at Kansas City. However, there appears to be a significantly higher cost of doing business at Kansas City which is independent of trading volume. The implications of these findings to traders is that transacting is more expensive in Kansas City than in Chicago.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thompson, Sarahelen & Eales, James S. & Seibold, David, 1991. "Comparison of Liquidity Costs Between the Kansas City and Chicago Wheat Futures Contracts," Staff Paper Series 232522, University of Alberta, Department of Resource Economics and Environmental Sociology.
  • Handle: RePEc:ags:ualbsp:232522
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    File URL: http://ageconsearch.umn.edu/record/232522/files/ualberta-staffpapers-91-14.pdf
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    References listed on IDEAS

    as
    1. Thompson, S.R. & Liu, S.M., 1991. "The Price Adjustment Process and Efficiency of Grain Futures Markets Implied by return Series of Various Time Intervals," Papers 216, Columbia - Center for Futures Markets.
    2. Seha M. Tinic, 1972. "The Economics of Liquidity Services," The Quarterly Journal of Economics, Oxford University Press, vol. 86(1), pages 79-93.
    3. Shah, Samarth & Brorsen, B. Wade & Anderson, Kim B., 2009. "Liquidity Costs in Futures Options Markets," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53047, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    4. Wilson, William W., 1982. "Hedging Effectiveness of U.S. Wheat Futures Markets," Agricultural Economics Reports 23215, North Dakota State University, Department of Agribusiness and Applied Economics.
    5. George, Thomas J & Kaul, Gautam & Nimalendran, M, 1991. "Estimation of the Bid-Ask Spread and Its Components: A New Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 623-656.
    6. Thompson, S. & Waller, M.L., 1988. "Determinants Of Liquidity Costs In Commodity Furures Markets," Papers 172, Columbia - Center for Futures Markets.
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    Citations

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    Cited by:

    1. Shah, Samarth & Brorsen, B. Wade & Anderson, Kim B., 2009. "Liquidity Costs in Futures Options Markets," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53047, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. Joost M. E. Pennings & Matthew T. G. Meulenberg, 1997. "The hedging performance in new agricultural futures markets: A note," Agribusiness, John Wiley & Sons, Ltd., vol. 13(3), pages 295-300.
    3. Batts, Ryan M. & Irwin, Scott & Good, Darrel, 2009. "The Pricing Performance of Market Advisory Services in Wheat Over 1995-2004," AgMAS Project Research Reports 183426, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    4. Julieta Frank & Philip Garcia, 2011. "Measuring the cost of liquidity in agricultural futures markets: Conventional and Bayesian approaches," Agricultural Economics, International Association of Agricultural Economists, vol. 42, pages 131-140, November.
    5. Julieta Frank & Philip Garcia, 2010. "Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(1), pages 209-225.
    6. Bryant, Henry L. & Haigh, Michael S., 2001. "Estimating Actual Bid-Ask Spreads In Commodity Futures Markets," 2001 Annual meeting, August 5-8, Chicago, IL 20707, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Henry Bryant & Michael Haigh, 2004. "Bid-ask spreads in commodity futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 14(13), pages 923-936.
    8. 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).
    9. Pennings, Joost M.E. & Garcia, Philip & Marsh, Julia W., 2003. "Futures Market Depth: Revealed Vs. Perceived Price Order Imbalances," 2003 Conference, April 21-22, 2003, St. Louis, Missouri 18989, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    10. Lien, Donald & Yang, Li, 2008. "Asymmetric effect of basis on dynamic futures hedging: Empirical evidence from commodity markets," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 187-198, February.
    11. Park, Cheol-Ho & Irwin, Scott H., 2004. "The Profitability Of Technical Trading Rules In Us Futures Markets: A Data Snooping Free Test," 2004 Conference, April 19-20, 2004, St. Louis, Missouri 19011, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    12. Yiuman Tse & Paramita Bandyopadhyay, 2006. "Multi-market trading in the Eurodollar futures market," Review of Quantitative Finance and Accounting, Springer, vol. 26(3), pages 321-341, May.
    13. B. Wade Brorsen & John Coombs & Kim Anderson, 1995. "The cost of forward contracting wheat," Agribusiness, John Wiley & Sons, Ltd., vol. 11(4), pages 349-354.
    14. Bryant, Henry L. & Haigh, Michael S., 2002. "Bid-Ask Spreads In Commodity Futures Markets," Working Papers 28587, University of Maryland, Department of Agricultural and Resource Economics.
    15. Good, Darrel L. & Irwin, Scott H. & Martines-Filho, Joao Gomes & Hagedorn, Lewis A., 2005. "The Pricing Performance of Market Advisory Services in Corn and Soybeans over 1995-2003," AgMAS Project Research Reports 14775, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    16. Irwin, Scott H. & Good, Darrel L. & Martines-Filho, Joao Gomes & Batts, Ryan M., 2006. "The Pricing Performance of Market Advisory Services in Corn and Soybeans Over 1995-2004," AgMAS Project Research Reports 37513, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.

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