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Causality Between Market Liquidity and Depth for Energy and Grains

Sari, Ramazan and Hammoudeh, Shawkat and Chang, Chia-Lin and McAleer, Michael (2011) Causality Between Market Liquidity and Depth for Energy and Grains. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 10, 2011, ] (Unpublished)

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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.


Item Type:Working Paper or Technical Report
Additional Information:

JEL Classifications: Q11, Q18, Q42.
*For financial support, the third author wishes to thank the National Science Council, Taiwan, and the fourth author wishes to thank the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.

Uncontrolled Keywords:Causality, Market liquidity, Depth, Energy, Grains.
Subjects:Social sciences > Economics > Finance
Social sciences > Economics > Econometrics
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2011
Number:10
ID Code:12614
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