The macroeconomic determinants of commodity futures volatility: Evidence from Chinese and Indian markets

Mo, Di; Gupta, Rakesh; Li, Bin; Singh, Tarlok

doi:10.1016/j.econmod.2017.08.032

Cited by 55 publications

(21 citation statements)

References 37 publications

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“…There is a two-way asymmetric causality between the US equity and commodity futures market (Nguyen et al, 2014). Mo et al (2017) lists stock index as one of the macroeconomic variables, which affect returns in commodity futures market of India. Tang and Zhu (2015) observe a structural break in commodity market, which is caused by the inflow of index traders.…”

Section: Literature Reviewmentioning

confidence: 99%

Determinants of the Commodity Futures Market Performance: An Indian Perspective

Dubey

Shankar

2020

South Asia Economic Journal

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This article aims to find out interlinkages between equity and commodity markets through the channel of investors’ outlook in the equity market. The proxies used for gauging perception of investors are investor sentiment index and Advance–Decline ratio. The study also incorporates the introduction of Commodity Transaction Tax (CTT) and occurrence of National Spot Exchange Limited (NSEL) scam in the year 2013. Additionally, returns in commodity market are examined to be a function of equity returns. The empirical findings suggest that the liquidity of commodity futures is inversely related to investor sentiments in equity market, and commodity returns are also negatively related to equity returns. Therefore, equity and commodity markets are inversely related, as liquidity in both the markets reacts to the investor sentiments; contrarily, commodity returns experience a significantly negative impact from equity returns. Additionally, the results also provide evidence that investor sentiment in equity possesses the ability to predict liquidity in the commodity futures market. The study also suggests that the CTT and NSEL scam have significantly and positively affected the liquidity of the Indian commodity market.

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Section: Literature Reviewmentioning

confidence: 99%

Determinants of the Commodity Futures Market Performance: An Indian Perspective

Dubey

Shankar

2020

South Asia Economic Journal

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“…The increase in the financialization of futures markets has been well documented in the literature (Gosh et al, 2012;Tang and Xiong, 2012;Algieri, 2016;Basak and Pavlova, 2016; and Aїt-Youcef, forthcoming). Simultaneously, there has been a significant increase in the volatility in futures markets as well (Cheng et al, 2015;Roy and Roy, 2017;and Mo et al 2018). 7 As a result of the highly volatile commodities pricing environment over the past eight years, many practitioners and regulators have proposed that restrictions be placed on commodities futures in the form of position limits (U.S. Senate Subcommittee Report, 2009).…”

Section: Related Literaturementioning

confidence: 99%

Financial Frictions and the Futures Pricing Puzzle

Gwilym

Ebrahim

Alaoui³

et al. 2019

SSRN Journal

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In perfect capital markets, the futures price of an asset should be an unbiased forecast of its realized spot price when the contract matures. In reality, futures prices are often higher for some assets and lower for others. However, there is no stability in the relationship between futures prices and the realized spot prices. This instability has been a puzzle in the existing financial literature. The key to this puzzle may lie in the nature of the model and the lack of market imperfections. In this study, we take a theoretical approach in a dynamic multi-period environment. We incorporate competition between disparate economic agents and impose financial frictions (i.e., imperfections) that are in the form of hedging and borrowing limits on them. Our model gives rise to multiple equilibria, each with unique market clearing prices, with the market switching between these equilibria.Our analysis incorporates a comprehensive consideration of the risks faced by the futures markets participants (i.e., speculators and hedgers) and leads to a better understanding of the puzzle.JEL Classification Codes: D58, D74, G13, N20

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Section: Introductionmentioning

confidence: 99%

Financial frictions and the futures pricing puzzle

et al. 2020

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In perfect capital markets, the futures price of an asset should be an unbiased forecast of its realized spot price when the contract matures. In reality, futures prices are often higher for some assets and lower for others. However, there is no stability in the relationship between futures prices and the realized spot prices. This instability has been a puzzle in the existing financial literature. The key to this puzzle may lie in the nature of the model and the lack of market imperfections. In this study, we take a theoretical approach in a dynamic multi-period environment. We incorporate competition between disparate economic agents and impose financial frictions (i.e., imperfections) that are in the form of hedging and borrowing limits on them. Our model gives rise to multiple equilibria, each with unique market clearing prices, with the market switching between these equilibria. Our analysis incorporates a comprehensive consideration of the risks faced by the futures markets participants (i.e., speculators and hedgers) and leads to a better understanding of the puzzle.

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The macroeconomic determinants of commodity futures volatility: Evidence from Chinese and Indian markets

Cited by 55 publications

References 37 publications

Determinants of the Commodity Futures Market Performance: An Indian Perspective

Determinants of the Commodity Futures Market Performance: An Indian Perspective

Financial Frictions and the Futures Pricing Puzzle

Financial frictions and the futures pricing puzzle

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