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Causality Between Market Liquidity and Depth for Energy and Grains

Author

Listed:
  • Ramazan Sari

    (Department of Business Administration, Middle East Technical University)

  • Shawkat Hammoudeh

    (Lebow College of Business, Drexel University)

  • Chia-Lin Chang

    (Department of Applied Economics, National Chung Hsing University)

  • Michael McAleer

    (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)

Abstract

This paper examines the roles of futures prices of crude oil, gasoline, ethanol, corn, soybeans and sugar in the energy-grain nexus. It also investigates the own- and cross-market impacts for lagged grain trading volume and open interest in the energy and grain markets. According to the results, the conventional view, for which the impacts are from oil to gasoline to ethanol to grains in the energy-grain nexus, does not hold well in the long run because the oil price is influenced by gasoline, soybeans and oil. Moreover, gasoline is preceded by only the oil price and ethanol is not foreshadowed by any of the prices. However, in the short run, two-way feedback in both directions exists in all markets. The grain trading volume effect across oil and gasoline is more pronounced in the short run than the long run, satisfying both the overconfidence/disposition and new information hypotheses across markets. The results for the ethanol open interest shows that money flows out of this market in both the short and long run, but no results suggest across market inflows or outflows to the other grain markets.

Suggested Citation

  • Ramazan Sari & Shawkat Hammoudeh & Chia-Lin Chang & Michael McAleer, 2011. "Causality Between Market Liquidity and Depth for Energy and Grains," KIER Working Papers 769, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:769
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    Cited by:

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    3. Jiang, Yonghong & Lao, Jiashun & Mo, Bin & Nie, He, 2018. "Dynamic linkages among global oil market, agricultural raw material markets and metal markets: An application of wavelet and copula approaches," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 508(C), pages 265-279.
    4. David E. Allen & Chialin Chang & Michael McAleer & Abhay K Singh, 2018. "A cointegration analysis of agricultural, energy and bio-fuel spot, and futures prices," Applied Economics, Taylor & Francis Journals, vol. 50(7), pages 804-823, February.
    5. Antonakakis, Nikolaos & Floros, Christos & Kizys, Renatas, 2016. "Dynamic spillover effects in futures markets: UK and US evidence," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 406-418.
    6. 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.
    7. Cifarelli, Giulio & Paesani, Paolo, 2018. "Navigating the oil bubble: A non-linear heterogeneous-agent dynamic model of futures oil pricing," MPRA Paper 90470, University Library of Munich, Germany.
    8. Zhang, Dayong & Wang, Tiantian & Shi, Xunpeng & Liu, Jia, 2018. "Is hub-based pricing a better choice than oil indexation for natural gas? Evidence from a multiple bubble test," Energy Economics, Elsevier, vol. 76(C), pages 495-503.
    9. Mensi, Walid & Hammoudeh, Shawkat & Nguyen, Duc Khuong & Yoon, Seong-Min, 2014. "Dynamic spillovers among major energy and cereal commodity prices," Energy Economics, Elsevier, vol. 43(C), pages 225-243.
    10. Demirer, Rıza & Lee, Hsiang-Tai & Lien, Donald, 2015. "Does the stock market drive herd behavior in commodity futures markets?," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 32-44.
    11. Cees Diks & Marcin Wolski, 2016. "Nonlinear Granger Causality: Guidelines for Multivariate Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(7), pages 1333-1351, November.
    12. Lin, Yu & Xiao, Yang & Li, Fuxing, 2020. "Forecasting crude oil price volatility via a HM-EGARCH model," Energy Economics, Elsevier, vol. 87(C).
    13. Zhan-Ming Chen & Liyuan Wang & Xiao-Bing Zhang & Xinye Zheng, 2019. "The Co-Movement and Asymmetry between Energy and Grain Prices: Evidence from the Crude Oil and Corn Markets," Energies, MDPI, Open Access Journal, vol. 12(7), pages 1-18, April.
    14. Mohcine Bakhat & Klaas WŸrzburg, 2013. "Co-integration of Oil and Commodity Prices: A Comprehensive ApproachAbstract," Working Papers fa05-2013, Economics for Energy.
    15. Awartani, Basel & Aktham, Maghyereh & Cherif, Guermat, 2016. "The connectedness between crude oil and financial markets: Evidence from implied volatility indices," Journal of Commodity Markets, Elsevier, vol. 4(1), pages 56-69.
    16. Zhang, Chuanguo & Chen, Xiaoqing, 2014. "The impact of global oil price shocks on China’s bulk commodity markets and fundamental industries," Energy Policy, Elsevier, vol. 66(C), pages 32-41.
    17. Liu, Ming-Lei & Ji, Qiang & Fan, Ying, 2013. "How does oil market uncertainty interact with other markets? An empirical analysis of implied volatility index," Energy, Elsevier, vol. 55(C), pages 860-868.
    18. Mohcine Bakhat & Klaas WŸrzburg, 2013. "Price Relationships of Crude Oil and Food Commodities," Working Papers fa06-2013, Economics for Energy.
    19. R?za Demirer & Hsiang-Tai Lee & Donald Lien, 2013. "Commodity Financialization and Herd Behavior in Commodity Futures Markets," Working Papers 0221fin, College of Business, University of Texas at San Antonio.
    20. Mensi, Walid & Tiwari, Aviral & Bouri, Elie & Roubaud, David & Al-Yahyaee, Khamis H., 2017. "The dependence structure across oil, wheat, and corn: A wavelet-based copula approach using implied volatility indexes," Energy Economics, Elsevier, vol. 66(C), pages 122-139.

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    More about this item

    Keywords

    Causality; market liquidity; depth; energy; grains.;
    All these keywords.

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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