Price information in Producer markets: An evaluation of futures and spot cotton price relationships in the southwest region using cointegration

Hudson, Darren; Elam, Emmett; Ethridge, Don E.; Brown, Jeff

doi:10.1002/(sici)1520-6297(199607/08)12:4<363::aid-agr6>3.0.co;2-x

Cited by 7 publications

(5 citation statements)

References 4 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Information on how well the price discovery function is performed by commodity futures markets is essential, because these markets are widely used by firms, engaged in the production, marketing, and processing of commodities, to shift risk, facilitate equity financing, and discover prices (see, e.g. Hudson et al, 1996;Yang and Leatham, 1999;Pennings and Leuthold, 2000). In addition to focusing on the long-run causal relationship (as defined by Bruneau and Jondeau (1999)) between the futures price and the spot price as a usual way to examine the price discovery function of futures markets, we show that the notion of full adjustment, as used in our test procedure, provides a completely new perspective and insight for exploring the price discovery function of futures markets.…”

Section: Introductionmentioning

confidence: 99%

Identification by full adjustment: evidence from the relationship between futures and spot prices

Kuiper¹

2002

European Review of Agriculture Economics

View full text Add to dashboard Cite

This paper proposes a test for orthogonality of the errors in a vector error-correction model (VECM) that focuses on the recursive ordering among the contemporaneously correlated errors. The test is based on the fact that when the frequency of the data is sufficiently low one of the variables in the long-run equilibrium relationship adjusts fully within the same period to its new equilibrium level. An empirical investigation of the relationship between spot and futures prices for commodities traded on the Amsterdam Exchanges and the Chicago Board of Trade reveals that the spot price adjusts fully to its new equilibrium level if the price-discovery function of the futures market works well.

show abstract

Section: Introductionmentioning

confidence: 99%

Identification by full adjustment: evidence from the relationship between futures and spot prices

Kuiper¹

2002

European Review of Agriculture Economics

View full text Add to dashboard Cite

show abstract

“…Dividing the GARCH model into four different versions such as bivariate GARCH, bivariate BEKK GARCH, bivariate GARCH-X, and bivariate BEKK GARCH-X, Choudhry (2009) compares the hedging effect of stockpiled goods against non-stockpiled goods based on futures prices and spot prices of seven agricultural products, includ-ing maize, coffee, wheat, sugar, soy, livestock, and live pigs. The results reveal the outstanding performance of the through estimated hedge ratios calculated by the GARCH-X model in all stages, supporting Hudson et al (1996) and Yang et al (2001). However, different from Yang and Awokuse's (2003) research results, Choudhry (2009) points out that hedging effectiveness between stockpiled and non-stockpiled goods is quite similar.…”

Section: Literature Reviewmentioning

confidence: 52%

“…In terms of the research methodology, it can be seen that previous researches find the correlation between futures prices and spot prices by separately applying different kinds of cointegration, including VECM, VAR, GARCH, or mostly combined methods. Hudson et al (1996) collect 81 observations per year for 4 consecutive years and then apply Vector Error Correction Model (VECM) to show that cotton spot prices and futures prices are not correlated, which means that futures market and spot market experience a weak relationship. Using the same approach, Arfaoui (2018) justifies the longterm equilibrium relationship between crude oil spot prices and futures prices on the NYCE from 2007 to 2015.…”

Section: Literature Reviewmentioning

confidence: 99%

Hedging with commodity futures: evidence from the coffee market in Vietnam

Nhung¹,

Ngan²,

Hong³

et al. 2020

Investment Management and Financial Innovations

View full text Add to dashboard Cite

In July 2018, the Vietnam Commodity Exchange (VNX) was transferred into the Mercantile Exchange of Vietnam (MXV) to hedge price risks through futures on international commodity exchanges. This research aimed to verify the efficiency of futures on ICE EU and ICE US under the perspective of hedging for Vietnamese coffee, determine optimal hedging ratios and the optimal number of each futures contract, and investigate the feasibility of introducing domestic commodity exchanges in Vietnam. Using the Vector Error Correction Model (VECM), the results show that (1) Robusta futures with expiration dates of January, March, May, and July on ICE EU are efficient hedging tools, but the adverse result is justified for Arabica futures on ICE US; (2) Robusta futures with the expiration date of January are the best in terms of risk management for Vietnamese coffee market; (3) optimal hedge ratio of Robusta futures of around 34% is much lower than ratios showed by previous researches; (4) in the short term, introducing coffee futures into the domestic commodity exchanges is still not feasible in the short term, but should be considered in the long term in Vietnam. This is the first study providing empirical evidence about the hedging role of futures contracts on ICE EU and ICE US, contributing to enrich the existing empirical evidence on the hedging role of futures for the agricultural sector.

show abstract

“…Applications of non-stationarity and cointegration methods have also been undertaken to study dynamic agricultural price relationships and market integration. For instanee, Hudson et al, (1996) reports an evaluation of future and spot cotton price relationships in the Southwest region of the US using cointegration methods. The econometric procedures in this paper used a variant of the Granger causality test based on the traditional single equation approach of estimating restricted and unrestricted equations but applied to an error-correction model of the Engle-Granger-type.…”

Section: Review Of Previous Workmentioning

confidence: 99%

Cointegration and causality in international agricultural economics research

Zapata

Gil

1999

Agricultural Economics

View full text Add to dashboard Cite

A review of literature on applications of Granger causality to problems in international agricultural economics research is summarized. The review relates to cointegration theory, and it identifies the areas where-recent econometric developments may be of value. Testing procedures are outlined, and a discussion is provided on questions such as non-stationarity and asymptotic distribution of non-causality tcsts, the relationship between cointegration and causation, the relative merits of various testing procedures, and concerns about testing bivariate causality in higher dimensional models. Finally, a recent econometric development is discussed and its future use in applied research is discussed..() 1999 Elsevier Science B.V. All rights reserved. DI69-5150/99/$ -see front matter r

show abstract

Price information in Producer markets: An evaluation of futures and spot cotton price relationships in the southwest region using cointegration

Cited by 7 publications

References 4 publications

Identification by full adjustment: evidence from the relationship between futures and spot prices

Identification by full adjustment: evidence from the relationship between futures and spot prices

Hedging with commodity futures: evidence from the coffee market in Vietnam

Cointegration and causality in international agricultural economics research

Contact Info

Product

Resources

About