An evaluation of price linkages between futures and cash markets for cheddar cheese

Fortenbery, T. Randall; Zapata, Héctor O.

doi:10.1002/(sici)1096-9934(199705)17:3<279::aid-fut2>3.0.co;2-f

Cited by 56 publications

(24 citation statements)

References 14 publications

(22 reference statements)

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“…Serial correlation coefficients have been calculated in order to observe the forecasting efficiency of the basis, which is another precondition for the efficient implication of cost-of-carry model (Twite (1992), Fortenbery and Zapata (1997), "The transaction costs involvedin an index arbitrageincludes: (i) round-trip commission to buy and sell the contract and stock(s); (ii) one commission to open a position in the futures market; (iii) one marketimpactcost,i.e.,the bid-askspread,in the cashmarket,(iv) one marketimpactcost in the futures market and (v)security transactiontaxif anypayable (Cornell and French (1983)and Chung (1991). "Namely; India Bulls,Karvy, Motilal Oswaland Kotak Securities.…”

Section: Database and Research Methodologymentioning

confidence: 99%

“…effective implication of the cost-of-carry phenomenon (Twite (1992), Fortenbery and Zapata (1997) and Turkington and Walsh (1999).…”

Section: Management and Labour Studiesmentioning

confidence: 99%

“…Moreover, from Chan (1992) and Fortenbery and Zapata (1997) while examining the basis risk, stated that for an efficient cost-of-carry relationship between the futures and the cash market, basis should be stationary 141f market is in backwardation state, the arbitrageur can earn riskless profits by taking long position in the futures market and short in the cash market; and reverse will work if the market is in contango state, and these opportunities are exploitable only when the value of mispricing is greater than the transaction cost and the tax payable on such profits. and same has been observed for NIFTY futures as well (See Table 5).…”

Section: Figure 3: Basis Risk Over the Life Of Contractmentioning

confidence: 99%

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Investigating the Pricing Efficiency of Indian Equity Futures Market

Gupta

Singh

2007

Management and Labour Studies

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The present study examines the arbitrage efficiency of the Indian equity futures market over the sample period June 2000 to December 2005. The results suggest that although stable and strong long-run relationship exists between futures and cash markets but futures show significant deviations from its cost-of-carry price, which offers exploitable arbitrage opportunities to the traders. Mispricing has been observed to be a direct function of time-to-maturity, stochastic behavior of interest rates, short sales restriction in the cash market, information asymmetry in both futures and cash markets and restricted exposure of institutional traders to the futures market. Moreover, basis shows significant mean reverting behavior, which indicates that early liquidation option as suggested by Neal (1996) may be helpful in improving the price discovery efficiency in futures as well as cash markets.

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Section: Database and Research Methodologymentioning

confidence: 99%

“…effective implication of the cost-of-carry phenomenon (Twite (1992), Fortenbery and Zapata (1997) and Turkington and Walsh (1999).…”

Section: Management and Labour Studiesmentioning

confidence: 99%

Section: Figure 3: Basis Risk Over the Life Of Contractmentioning

confidence: 99%

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Investigating the Pricing Efficiency of Indian Equity Futures Market

Gupta

Singh

2007

Management and Labour Studies

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“…Activeness of the cash market: High activity and participation by different types of investors contribute to a potential higher demand for an organized futures market. In addition, a larger, more active cash market is more likely to have available and credible price information (Fortenbery & Zapata, 1997). Product homogeneity: Individual futures contracts can only hedge a single grade or quality of a commodity.…”

Section: Success and Failure Criteria For Futures Contractsmentioning

confidence: 99%

Does the design of spot markets matter for the success of futures markets? Evidence from dairy futures

Białkowski

Koeman

2017

Journal of Futures Markets

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This study provides evidence of the importance of a well‐defined and functioning spot market for the success of the associated futures market. Our analysis of hedging effectiveness and hedge ratio persistence shows that none of the United States (US) spot market indices may be hedged effectively with the Chicago Mercantile Exchange nonfat dry milk futures at short hedging horizons, whereas the New Zealand (NZ) Stock Exchange whole milk powder futures contract is an effective hedge for the Global Dairy Trade spot pricing benchmark. Four important dimensions of spot market design are identified—timeliness, market‐based measurement, forward‐spot separation, and inclusiveness.

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“…Sultan, 1993) and stock indices (Brooks et al, 2001). A few empirical studies, however, fail to identify a cointegrating relationship between spot and futures prices, wherein the lack of sufficient trading activity is often put forward as a possible explanation for this result (e.g., Fortenberry & Zapata, 1997;Mattos & Garcia, 2004).…”

Section: Literature Reviewmentioning

confidence: 99%

Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin?

Adämmer

Bohl

Gross

2015

Journal of Futures Markets

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractIt is still an unanswered question how much trading activity is needed for efficient price discovery in commodity futures markets. For this purpose, we investigate the price discovery process of two thinly traded agricultural futures contracts traded at the European Exchange in Frankfurt. Our empirical results show that the trading volume threshold which is necessary to facilitate efficient price discovery is very low.As our findings are based on constant and time-varying vector error correction models, we also show that neglecting time-variation in the parameters can lead to misleading results.JEL Classification: G12, G13, Q14

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An evaluation of price linkages between futures and cash markets for cheddar cheese

Cited by 56 publications

References 14 publications

Investigating the Pricing Efficiency of Indian Equity Futures Market

Investigating the Pricing Efficiency of Indian Equity Futures Market

Does the design of spot markets matter for the success of futures markets? Evidence from dairy futures

Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin?

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