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Stochastic Interest Rates And Price Discovery In Selected Commodity Markets

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  • Hector O. ZAPATA
  • T. Randall FORTENBERY

Abstract

The temporal relationship between Chicago corn and soybean cash prices, nearby futures prices, and interest rates is examined using daily 1980-1989 data. Johansen cointegration tests suggest joint movement of the three series over the data period considered. In addition, analyses of individual crop years, which is consistent with previous work, shows co-movement between cash, futures, and interest rates in years when bivariate cointegration between cash and futures prices was not found. The results provide initial empirical evidence that a potential limitation of previous research in the study of cash- futures simple efficiency has been the exclusion of the interest rate as a common stochastic factor explaining equilibrium in models of cash and futures prices.

Suggested Citation

  • Hector O. ZAPATA & T. Randall FORTENBERY, 1995. "Stochastic Interest Rates And Price Discovery In Selected Commodity Markets," Staff Papers 383, University of Wisconsin Madison, AAE.
    • Handle: RePEc:wop:wiaesp:383
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    Cited by:

    1. 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.
    2. Joshua G. Maples & B. Wade Brorsen, 2022. "Handling the discontinuity in futures prices when time series modeling of commodity cash and futures prices," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 70(2), pages 139-152, June.
    3. Wang, H. Holly & Ke, Bingfan, 2005. "Efficiency tests of agricultural commodity futures markets in China," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(2), pages 1-17.
    4. Schnake, Kristin N. & Karali, Berna & Dorfman, Jeffrey H., 2012. "The Informational Content of Distant-Delivery Futures Contracts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), pages 1-15, August.
    5. Shihabudheen, M.T. & Padhi, Puja, 2010. "Price Discovery and Volatility Spillover Effect in Indian Commodity Market," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 65(01), pages 1-17.
    6. Bohl, Martin T. & Siklos, Pierre L. & Stefan, Martin & Wellenreuther, Claudia, 2020. "Price discovery in agricultural commodity markets: Do speculators contribute?," Journal of Commodity Markets, Elsevier, vol. 18(C).
    7. Jerry Coakley & Jian Dollery & Neil Kellard, 2011. "Long memory and structural breaks in commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(11), pages 1076-1113, November.
    8. repec:wyi:journl:002103 is not listed on IDEAS
    9. Randall Fortenbery, 2004. "Developed speculation and underdeveloped markets--the role of futures trading on export prices in less developed countries," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 31(4), pages 451-471, December.
    10. Roselyne Joyeux & George Milunovich, 2010. "Testing market efficiency in the EU carbon futures market," Applied Financial Economics, Taylor & Francis Journals, vol. 20(10), pages 803-809.
    11. Dai, Yun-Shi & Huynh, Ngoc Quang Anh & Zheng, Qing-Huan & Zhou, Wei-Xing, 2022. "Correlation structure analysis of the global agricultural futures market," Research in International Business and Finance, Elsevier, vol. 61(C).
    12. Maples, Joshua G. & Brorsen, B. Wade, 2017. "Time Series Modeling of Cash and Futures Commodity Prices," 2017 Conference, April 24-25, 2017, St. Louis, Missouri 285865, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    13. Bozic, Marin, 2011. "Three essays in commodity futures and options price performance," Faculty and Alumni Dissertations 160678, University of Minnesota, Department of Applied Economics.
    14. Yang, Yao & Karali, Berna, 2022. "How far is too far for volatility transmission?," Journal of Commodity Markets, Elsevier, vol. 26(C).
    15. Mann, Janelle M., 2012. "The Role of Long Memory in Hedging Strategies for Canadian Commodity Futures," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 30(2).
    16. Zapata, T. Randall Fortenbery & Armstrong, Delroy, 2005. "Price Discovery in the World Sugar Futures and Cash Markets: Implications for the Domincan Republic," Staff Paper Series 469, University of Wisconsin, Agricultural and Applied Economics.
    17. Prera, Alejandro & Fortenbery, T. Randall, 2016. "Risk Management: Hedging Potential for U.S. Breweries," 2016 Conference, April 18-19, 2016, St. Louis, Missouri 285849, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    18. Bozic, Marin & Fortenbery, T. Randall, 2012. "Price Discovery, Volatility Spillovers and Adequacy of Speculation," 2012 Conference, April 16-17, 2012, St. Louis, Missouri 285784, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    19. Sanders, Daniel J. & Balagtas, Joseph V. & Gruère, Guillaume P., 2012. "Revisiting the palm oil boom in Southeast Asia: The role of fuel versus food demand drivers," IFPRI discussion papers 1167, International Food Policy Research Institute (IFPRI).
    20. Ling‐Yun He & Wen‐Si Xie, 2012. "Who has the final say?," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 4(3), pages 379-390, August.
    21. Mann, Janelle & Sephton, Peter, 2010. "A Comparison of Hedging Strategies and Effectiveness for Storable and Non-Storable Commodities," 2010 Conference, April 19-20, 2010, St. Louis, Missouri 285325, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    22. Dimpfl, Thomas & Flad, Michael & Jung, Robert C., 2017. "Price discovery in agricultural commodity markets in the presence of futures speculation," Journal of Commodity Markets, Elsevier, vol. 5(C), pages 50-62.
    23. Bhabani Sankar Rout & Nupur Moni Das & K. Chandrasekhara Rao, 2024. "Does Commodity Derivatives Function Effectively? A lengthy Discussion," IIM Kozhikode Society & Management Review, , vol. 13(2), pages 154-165, July.

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