Price discovery in agricultural commodity markets: Do speculators contribute?

Bohl, Martin T.; Siklos, Pierre L.; Stefan, Martin; Wellenreuther, Claudia

doi:10.1016/j.jcomm.2019.05.001

Cited by 23 publications

(22 citation statements)

References 41 publications

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“…Zhong et al (2004) initiated that the futures market in Mexico is considered as a suitable price discovery vehicle and a source of instability for the spot market. The studies of Bohmann et al (2018), Bohl et al (2019) examined the role of speculation in the price discovery process and found that speculation is a significant element in commodity derivatives to manage price instability. Yang et al (2001) prompted that asset storability may not affect the co-integration of the futures market in predicting cash prices, but it may affect the magnitude of bias of futures market estimates.…”

Section: Review Of Literaturementioning

confidence: 99%

Price discovery and market efficiency of cardamom in India

Vijayakumar¹

2021

XJM

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Purpose Transparent and fair price discovery is essential to commodity market participants in the trade value chain for competitive benefit. The purpose of this paper is to investigate the price discovery of Indian cardamom at e-auction, spot and futures markets in addition to the existence of the day of the week effect at e-auction apart from exploring a novel price risk management framework. Design/methodology/approach This study used Johansen co-integration, vector error correction model, Granger causality and regression with dummy variables to understand a day of the week effect in high-value agri-commodity of cardamom e-auction prices. These price data were based on authenticated sources of Spices Board India and Multi Commodity Exchange of India Ltd. Findings The statistical results indicate price discovery exists in the e-auction market and it leads to spot and futures prices. cardamom e-auction prices are negatively related to cardamom futures and positively related to spot prices. It also finds the non-existence of the day of the week effect in the high-value cardamom e-auction system in India. The study revealed that a cardamom e-auction is more active in price discovery than a cardamom futures contract. Research limitations/implications These results shall facilitate policymakers to explore intervention of online forward market mechanism at the national level to ensure price discovery and market efficiency. However, the study did not explore reasons for the non-equilibrium of a cardamom futures contract with spot and e-auction market. Practical implications The results of this study are useful in understanding the price discovery of cardamom e-auction and its role in the spot and futures market. Cardamom price discovery depends upon the e-auction system; any change of auction policy shall be binding on Indian cardamom prices. The introduction of an online forward market mechanism as described in the paper shall facilitate price risk management apart from improving the efficiency of price discovery. Originality/value This is the first study considering cardamom e-auction, spot and futures prices in the price discovery process in India. Statistical results of a day of the week effect clearly show no significant volatility of cardamom prices during the week. Besides, this study did not find the role of cardamom futures contracts intended to serve the economic function of price discovery and price risk management. Hence, suggests policy intervention for implementing an online Forward Market mechanism for Indian cardamom to ensure market efficiency and manage price risk.

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Section: Review Of Literaturementioning

confidence: 99%

Price discovery and market efficiency of cardamom in India

Vijayakumar¹

2021

XJM

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“…The flagship example of the futures market amplifying the level of spot price volatility is onion futures in the United States, concern over which eventually led to the banning of onion futures trading (The Onion Futures Act, Public Law 85-839) [9]. Ban on futures trading in India has led to greater volatility in the spot market [27], and Bohl research shows that the regulator's efforts to curb speculation in the futures may adversely affect the commodity market's price discovery process [28].…”

Section: Literature Reviewmentioning

confidence: 99%

Is Futurization the Culprit for the Violent Fluctuation in China’s Apple Spot Price?

et al. 2021

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China aims to utilize the futures market to stabilize agricultural product price fluctuation by quantifying the effects of risk transfer and price discovery. However, the role of futurization has been questioned and even posited as the cause of drastic fluctuations in spot market prices. This research aims to clarify the impact of futurization on the price fluctuation of agricultural products and to provide policy reference for the development of the agricultural futures market through the research. Here, we examine the spot price data for apples and use Interrupted time-series analysis (ITSA) and GARCH models to estimate the impact of apple futures on the volatility of spot prices. Our findings demonstrate that the launch of China’s apple futures did not increase the volatility of apple spot prices; that is, futurization was not the cause of skyrocketing apple spot prices. In the long term, our results suggest that futures will help reduce the volatility of apple spot prices and that the introduction of futures will ultimately reduce the price volatility of agricultural products.

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“…However, as a result of the financialization of commodities and the hedging possibilities of the exchange rate, the effects of exchange rate volatilities largely depend on responses to risks and uncertainties (Thuy and Thuy, 2019). For example, the results in (Bohl et al, 2019) suggest that speculative activity reduces the level of noise in the agricultural commodity markets and increases their relative contribution to the price discovery process.…”

Section: Food Prices and Exchange Rate In Nigeriamentioning

confidence: 99%

Returns and volatility spillover between food prices and exchange rate in Nigeria

Akanni

2020

JADEE

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PurposeEmpirical studies have documented the linkage between exchange rate movement and food prices. However, the purpose of this study is to investigate the degree and direction of returns and volatility spillover transmission between exchange rate and domestic food prices in Nigeria.Design/methodology/approachThe study uses weekly data from January 2010 to January 2019. Also, the study adopts the improved Diebold and Yilmaz (2012) approach to evaluate the return and volatility spillover between food price and naira to dollar exchange rate. The study also account for 2016 exchange rate crash in the interconnectedness between food prices and naira to dollar exchange rate.FindingsThe paper finds evidence of directional interdependence among the considered food prices and exchange rate based on the obtained spillover indexes. In addition, exchange rate returns and volatility transmission to food prices is more than it receives, particularly after the exchange rate crash.Research limitations/implicationsThe high consumption of staple foods requires policies on price stabilisation such as massive investment in local production and reduction in import dependence, in order to cushion the effects of exchange rate depreciation on domestic prices of food.Originality/valueThis study is the first empirical study to investigate the interconnectedness between exchange rate and domestic food prices for a food import–dependent developing country using the Diebold and Yilmaz approach.

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Price discovery in agricultural commodity markets: Do speculators contribute?

Cited by 23 publications

References 41 publications

Price discovery and market efficiency of cardamom in India

Price discovery and market efficiency of cardamom in India

Is Futurization the Culprit for the Violent Fluctuation in China’s Apple Spot Price?

Returns and volatility spillover between food prices and exchange rate in Nigeria

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