Hammoudeh, Shawkat and Sarafrazi, Soodabeh and Chang, Chia-Lin and McAleer, Michael (2011) The Dynamics of Energy-Grain Prices with Open Interest. [Working Paper or Technical Report] (Unpublished)
Available under License Creative Commons Attribution Non-commercial.
Official URL: http://eprints.ucm.es/12808/
This paper examines the short- and long-run daily relationships for a grain-energy nexus that includes the prices of corn, crude oil, ethanol, gasoline, soybeans, and sugar, and their open interest. The empirical results demonstrate the presence of these relationships in this nexus, and underscore the importance of ethanol and soybeans in all these relationships. In particular, ethanol and be considered as a catalyst in this nexus because of its significance as a loading factor, a long-run error corrector and a short-run adjuster. Ethanol leads all commodities in the price discovery process in the long run. The negative cross-price open interest effects suggest that there is a money outflow from all commodities in response to increases in open interest positions in the corn futures markets, indicating that active arbitrage activity takes place in those markets. On the other hand, an increase in the soybean open interest contributes to fund inflows in the corn futures market and the other futures markets, leading to more speculative activities in these markets. In connection with open interest, the ethanol market fails because of its thin market. Finally, it is interesting to note that the long-run equilibrium (cointegrating relationship), speeds of adjustment and open interest across markets have strengthened significantly during the 2009-2011 economic recovery period, compared with the full and 2007-2009 Great Recession periods.
|Item Type:||Working Paper or Technical Report|
|Additional Information:||JEL: E43, Q11, Q13.|
|Uncontrolled Keywords:||Energy-grain price nexus, Open interest, Futures prices, Ethanol, Crude oil, Gasoline, Corn, Soybean, Sugar, Arbitrage, Speculation.|
|Subjects:||Social sciences > Economics > Econometrics|
Social sciences > Economics > Economic indicators
|Series Name:||Documentos de Trabajo del Instituto Complutense de Análisis Económicos|
Baffes, J. and Haniotis, T. (2010). “Placing the 2006/08 commodity price boom into perspective.” Policy Research Working Paper 5371, World Bank. http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2010/07/21/000158349_20100721110120/Rendered/PDF/WPS5371.pdf.
Balcombe, K. and Rapsomanikis, G. (2008). “Bayesian estimation and selection of nonlinear vector error correction models: The case of the sugar-ethanol-oil nexus in Brazil”. American Journal of Agricultural Economics 90, 658-668.
Dahlgran, R.A. (2009). “Inventory and transformation hedging effectiveness in corn crushing.” Journal of Agricultural and Resource Economics 34, 154-171.
Dahlgran, R.A. (2010). “Ethanol futures: Thin but effective? Why?” Proceedings of the NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting and Market Risk Management. St. Louis, Missouri. http://www.farmdoc.illinois.edu/nccc134.
Franken, J.R.V. and Parcell, J.L. (2003) “Cash ethanol cross-hedging opportunities.” Journal of Agricultural and Applied Economics 35, 509-516.
Garbade, K. and Silber, W.L. (1982). “Price movements and price discovery in futures and cash markets.” Review of Economics and Statistics 64, 289-297.
Gohin A. and Treguer D. (2010). “On the (de)stabilization effects of biofuels: Relative contributions of policy instruments and market forces.” Journal of Agricultural and Resource Economics 35, 72-86.
Johansen, S. (1988). “Statistical analysis of cointegrating vectors.” Journal of Economic Dynamics and Control 12, 231-254.
Johansen, S. and Juselius, K. (1990). “Maximum likelihood estimation and inferences on cointegration-with application to demand for money.” Oxford Bulletin of Economics and Statistics 52, 169-210.
Lin, W. and Riley, P.A. (1998). “Rethinking the soybeans-to-corn price ratio. Is it still a good indicator for planting decisions?” Economic Research Service, US Department of Agriculture, Washington, D,C., April, 1-33.
Mattos, F. and Garica, P. (2004). “Price discovery in thinly traded markets: Cash and futures relationships in Brazilian agricultural futures markets.” Proceedings of the NCCC-134.
Conference on Applied Commodity Price Analysis, Forecasting and Market Risk Management. St. Louis, Missouri. http://ageconsearch.umn.edu/bitstream/19019/1/cp04ma02.pdf .
Tokgoz, S., Elobeid, A. Fabiose, J., Hayes, D.J., Babcock, B.A., Yu, T.H. and Dong, F.X. (2008). “Bottlenecks, drought, and oil price spikes: Impact on U.S ethanol and agricultural sectors.” Review of Agricultural Economics 30, 604-622.
Tyner, W.E. (2010). “The integration of energy and agricultural markets.” Agricultural Economics 41, 193-201.
Tyner, W.E. (2008). “The US ethanol and biofuels boom: Its origin, current status and future prospect.” BioScience 58, 646-653.
Wang, H.H. and Ke, B. (2002). “Efficiency test of agricultural commodity futures markets in China.” Washington State University. http://www.bm.ust.hk/~ced/Holly%20H%20WANG.pdf .
Yang, J., Bessler, D.A. and Leathan, D. (2001). “Asset storability and price discovery in commodity futures market: A new look”. Journal of Futures Markets 21, 279-300.
Zapato, H.O., Fortenberry, T. R. and Armstrong, D. (2003). “Price discovery in the futures and cash market for sugar.” Paper presented at the Southern Agricultural Economics Association Annual Meeting, Mobile, Alabama, February, pp. 1-5.
Zapato, H.O., Fortenberry, T.R. and Armstrong, D. (2005). “Price discovery in the world sugar futures and cash markets: Implications for the Dominican Republic.” Staff Paper # 469, University of Wisconsin, Madison, Wisconsin.http://www.aae.wisc.edu/pubs/sps/pdf/stpap469.pdf.
|Deposited On:||02 Jun 2011 14:07|
|Last Modified:||06 Feb 2014 09:33|
Repository Staff Only: item control page