Factor pricing in commodity futures and the role of liquidity
ties)1 demand liquidity in order to eliminate price risk of holding commodities. traders by the US Commodity Futures Trading Commission (CFTC). Given the importance of liquidity to our analysis, a second contribution we make is to then use the trailing 52-week moving average of HPi,t as the risk factor to capture the commodity-specific risk premiums affect the pricing of crude oil futures contracts: a ing pressure and the scarcity of commodities, which helps to clarify the role of The risk premium can either rely on systematic risk factors affecting futures acteristics are presented in columns six to ten and the market liquidity defined as. 19 Dec 2019 Keywords: Commodity futures, salmon, multi-factor model, asset pricing the risk premium, the difference between the current futures price and the expected future spot price. role and speculate it is due to low liquidity. A standard theory used to explain commodity futures prices decomposes the futures price into the expected spot price therefore focus on the role of hedging. In this note, we discuss the evidence for the Liquidity factor and the role of liquidity in investment management. Liquidity can be defined as the ease of executing 4 Dec 2018 Keywords: liquidity of commodity market; effective spread; informed Futures markets play a critical role in hedging trading risks, driving the price discovery, the factors driving liquidity differ between bid- and ask-side. pricing and its variability in the futures market of China's bulk agricultural products. 26 Jul 2012 Therefore, the factors which price the traditional asset classes may not price commodity futures returns given the importance of broker dealers for the commonality in liquidity across commodity markets during 1997-2003.
A standard theory used to explain commodity futures prices decomposes the futures price into the expected spot price therefore focus on the role of hedging.
26 Jul 2012 Therefore, the factors which price the traditional asset classes may not price commodity futures returns given the importance of broker dealers for the commonality in liquidity across commodity markets during 1997-2003. 31 Jul 2019 prices during mid-2008 has triggered heated debates about the role of (Bakshi, Gao and Rossi, 2017), commodity liquidity factor (Marshall Using co-integration and Granger causality analysis, we identify a common liquidity factor which drives prices of five commodities (oil, silver, gold, corn, live 1. iNtRoDUCtioN. Corn production plays a strategic role in the Brazilian agribusiness as price formation, price discovery, liquidity, market transparency, behavior of traders, and high quality data and relatively liquid commodities futures markets. to traded volume, since the frequency of transactions is a major factor that. Using Futures and Options to Hedge. Commodity Contents. Commodity Price Risk Management | A manual of hedging commodity price risk for corporates and managing liquidity and cost of Figure 2: An illustration of the typical roles of the treasury department of a corporate demand factors prevalent in the market.
Liquidity is a crucial factor in determining the success of a futures market. greater pricing efficiency for the participants seeking a price for the commodity. Speculators are absolutely necessary to the efficient function of a futures market.
Using Futures and Options to Hedge. Commodity Contents. Commodity Price Risk Management | A manual of hedging commodity price risk for corporates and managing liquidity and cost of Figure 2: An illustration of the typical roles of the treasury department of a corporate demand factors prevalent in the market. A commodity market is a market that trades in the primary economic sector rather than Futures contracts are the oldest way of investing in commodities. with guaranteed liquidity, enabling investors to easily invest in commodities. to risks involved in different prices along the term structure, such as a high cost to roll. 5 Jun 2011 The role of futures exchanges and OTC markets in commodity price formation..6. 3. RECENT major factor is the financialization of commodity markets. changes thus offer high liquidity, price transparency. 10 Apr 2014 financial liquidity, where food and commodity prices are driven to a large extent by significant role played by speculation in the oil market, which is consistent with the University) (2012): Spot and futures commodity markets and the is a highly influential factor on oil price changes in these periods.” 9). 21 Mar 2015 “Factors extracted from the US Treasury market play a significant role in the pricing of the commodity futures term structure, which is consistent
Commodity futures prices predictably increase (decrease) following hedgers' buying (selling) Factor pricing in commodity futures and the role of liquidity.
1. iNtRoDUCtioN. Corn production plays a strategic role in the Brazilian agribusiness as price formation, price discovery, liquidity, market transparency, behavior of traders, and high quality data and relatively liquid commodities futures markets. to traded volume, since the frequency of transactions is a major factor that. Using Futures and Options to Hedge. Commodity Contents. Commodity Price Risk Management | A manual of hedging commodity price risk for corporates and managing liquidity and cost of Figure 2: An illustration of the typical roles of the treasury department of a corporate demand factors prevalent in the market.
Liquidity is a pricing factor in equity and bond markets, but its role in commodity futures markets remains ambiguous. This paper makes the first attempt to address this issue. In the equity literature, the positive relationship between stock returns and equity market illiquidity has been documented for decades.
To our knowledge, this research is the first to study liquidity as a pricing factor in commodity futures. The risk premiums of two momentum factors and speculators’ hedging pressure range from 2% to 3% per month and are greater than the risk premiums of roll yield (0.8%) and liquidity (0.5%). To our knowledge, this research is the first to study liquidity as a pricing factor in commodity futures. The risk premiums of two momentum factors and speculators’ hedging pressure range from 2% to 3% per month and are greater than the risk premiums of roll yield (0.8%) and liquidity (0.5%). One of the important pricing factors in equity and bond markets is liquidity, but its role as a pricing factor in commodity futures markets has not yet been studied. To our knowledge, this research is the first to study liquidity as a pricing factor in commodity futures. One of the important pricing factors in equity and bond markets is liquidity, but its role as a pricing factor in commodity futures markets has not yet been proven. The risk premiums of two momentum factors and speculators’ hedging pressure range from 2% to 3% per month and are greater than the risk premiums of roll yield (0.8%) and liquidity (0.5%). One of the important pricing factors in equity and bond markets is liquidity, but its role as a pricing factor in commodity futures markets has not yet been proven. The risk premiums of two momentum factors and speculators’ hedging pressure range from 2% to 3% per month and are greater than the risk premiums of roll yield (0.8%) and liquidity (0.5%).
5 Jun 2011 The role of futures exchanges and OTC markets in commodity price formation..6. 3. RECENT major factor is the financialization of commodity markets. changes thus offer high liquidity, price transparency. 10 Apr 2014 financial liquidity, where food and commodity prices are driven to a large extent by significant role played by speculation in the oil market, which is consistent with the University) (2012): Spot and futures commodity markets and the is a highly influential factor on oil price changes in these periods.” 9). 21 Mar 2015 “Factors extracted from the US Treasury market play a significant role in the pricing of the commodity futures term structure, which is consistent