Asymmetric Adjustments in the Ethanol and Grains Markets

Chang, Chia‐Lin; Chen, Li-Hsueh; Hammoudeh, Shawkat; McAleer, Michael

doi:10.2139/ssrn.1729126

Cited by 5 publications

(12 citation statements)

References 16 publications

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“…Meanwhile, a shock that results in weakening/widening of corn basis because of a rise in futures price (relative to spot price) will tend to revert quickly back toward the equilibrium via a corresponding rises in the spot price. In this case, the price adjustment for corn exhibits a downward rigidity and a positive asymmetric price adjustment, which is consistent with the findings for corn in Chang et al (). However, the consistent M‐TAR model for soybeans indicates that

false| ρ_{1} false| > | ρ_{2} |

, meaning that a shock resulting in a strengthening/ narrowing of soybeans basis that is owing to a decline in futures price (relative to spot price) will revert much more quickly towards the equilibrium than a shock leading to a weakening/widening basis.…”

Section: Resultssupporting

confidence: 91%

“…Moreover, for the consistent M‐TAR model, it is found that the F ‐test for symmetric adjustment can be rejected at the 1% level of significance for corn and at the 5% level of significance for soybeans. The findings of the F ‐tests based on the consistent M‐TAR model are consistent with Chang et al () and provide strong evidence in support of asymmetric price adjustment for both corn and soybeans.…”

Section: Resultssupporting

confidence: 87%

“…First, the correct specification of the asymmetric price adjustment is crucial for grain producers to use futures contracts as a protection against price risk exposure in the cash market (Morgan, Rayner, & Vaillant, ; Rochelle, ). Second, understanding the asymmetric price adjustment benefits grain consumers, including livestock farmers and ethanol plants when calculating optimal hedging ratios, assessing the cost‐effectiveness of hedging, and forecasting spot prices (Chang, Chen, Hammoudeh, & McAleer, ; Ewing, Hammoudeh, & Thompson, ). Finally, the asymmetric comovement in basis reflects the efficiency of grain markets, which sheds light on profit opportunities for arbitrageurs (Beck, ; Carter & Mohapatra, ; Chen, Lee, & Zeng, ; McKenzie & Holt, ).…”

Section: Introductionmentioning

confidence: 99%

“…Ewing et al () defined basis as the difference between logarithmic futures and spot prices, whereas Chang et al () defined basis as the difference between logarithmic spot and futures prices…”

mentioning

confidence: 99%

See 3 more Smart Citations

Asymmetric spot‐futures price adjustments in grain markets

Maynard

Weersink

et al. 2018

Journal of Futures Markets

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Recent volatility in food prices in the grain market has generated much interest among agricultural market participants. This study examines the nonlinear dynamic relationship between spot and futures prices in grain markets. The empirical results provide strong evidence of price asymmetries. The corn spot price adjusts faster to futures price increases than futures price decreases, whereas the soybean spot price adjusts faster to futures price decreases than futures price increases. Although this asymmetric adjustment is found for a single market in Ontario, Canada, the results may also provide insights on the spot‐futures price convergence issues in other commodity markets.

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false| ρ_{1} false| > | ρ_{2} |

Section: Resultssupporting

confidence: 91%

Section: Resultssupporting

confidence: 87%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Asymmetric spot‐futures price adjustments in grain markets

Maynard

Weersink

et al. 2018

Journal of Futures Markets

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show abstract

“…where Δ represents the first difference, I t represents the Heaviside indicator, I t measures the difference between TAR and M-TAR specification (Koto, 2015), ρ represents a not serially correlated error term (e t ) and λ t is the variable indicator of threshold. The coefficient of ρ 1 and ρ 2 is expected to be negative (Chang et al, 2012) as it measures adjustment towards long-run equilibrium. Absolute value of ρs indicates the speed of adjustment.…”

Section: Tar Modelmentioning

confidence: 99%

Long-term relationship of crude palm oil commodity pricing under structural break

Salami

Haron

2018

JCMS

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Purpose-The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily closing price of CPO and CPO futures (CPO-F) for the period ranging from June 2009 to August 2016 while taking structural breaks into account. Design/methodology/approach-In this study, symmetric and asymmetric long-run relationship model are employed, such as the Johansen cointegration, VECM, TAR and M-TAR models, to examine the impact of structural breaks on the pricing efficiency of the Malaysian CPO market. Findings-This finding establish that Malaysian CPO price is efficient before and after the structural break. The consistent efficiency of the Malaysian CPO market supports the trading of the CPO-F in Globex and the use of Malaysian CPO pricing as the reference price. This study establishes that a structural break in the Malaysian CPO price series does not affect the pricing efficiency of the market. Research limitations/implications-This study shows that using Malaysian CPO price as a reference price is sustainable even in the event of a structural break. Therefore, market participants in the Malaysian CPO market have less to worry about the CPO price as it supports the weak form of efficiency. Price deviation in the short run may not lead to arbitrage profit as transaction cost may not be covered. Practical implications-This study implies that if there is distortion in the price due to shocks, both manufacturers and producers need to hedge their positions in the futures market (subject to their positions in the underlying market). By entering into the futures market, pricing is locked in advance; hence, price risk is eliminated. Such a distortion could also affect the efficiency of the CPO price, therefore this study also addresses the issue of efficiency of the local CPO market. Originality/value-Previous studies on Malaysian CPO pricing efficiency did not take the effect of structural break into consideration, making it difficult for these studies to show consistency in the efficiency of the Malaysian CPO market.

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Testing for asymmetric cointegration of Italian agricultural commodities prices: Evidence from the futures-spot market relationship

Penone¹,

Trestini²

2022

Agric. Econ. - Czech

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The volatility of food prices still raises concerns among agricultural market players, increasing interest in the futures markets, thus calling for a better understanding of the connection between the futures and the Italian spot prices. This study uses symmetric and asymmetric vector error correction models to investigate the relationship between futures and spot prices for the Italian agricultural markets of soybean, corn, and milling wheat. The results confirm the leading role of the futures contract prices for all the considered commodities. Moreover, the non-linear cointegration analysis results suggest price transmission's asymmetries for all the agricultural commodity prices. This research provides critical insight into the shape of the futures-spot price transmission.

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Asymmetric Adjustments in the Ethanol and Grains Markets

Abstract: This paper examines the long-and short-run asymmetric adjustments for nine pairs of spot and futures prices, itemized as three own pairs for three different bio-fuel ethanol types, three own pairs for three related agricultural products, namely corn, soybeans and sugar, and three

Cited by 5 publications

References 16 publications

Asymmetric spot‐futures price adjustments in grain markets

Asymmetric spot‐futures price adjustments in grain markets

Long-term relationship of crude palm oil commodity pricing under structural break

Testing for asymmetric cointegration of Italian agricultural commodities prices: Evidence from the futures-spot market relationship

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