Measuring price discovery between nearby and deferred contracts in storable and nonstorable commodity futures markets

Zhepeng Hu, Mindy L Mallory, Teresa Serra, Philip Garcia

Research output: Contribution to journalArticlepeer-review

Abstract

Using price discovery measures, including Putniņš’ (2013) information leadership share and intraday data, we quantify the proportional contribution of nearby and deferred contracts in price discovery in the corn and live cattle futures markets. On average, nearby contracts reflect information more quickly than deferred contracts in the corn market, but have a relatively less dominant role in the live cattle market. In both markets, the nearby contract loses dominance when its relative volume share dips below 50%, which typically occurs when the nearby is close to maturity. Regression results indicate that the share of price discovery is mainly related to trading volume and time to expiration in both markets. In the corn market, price discovery share between nearby and deferred contracts is also related to inverse carrying charges, crop year differences, USDA announcements, market crashes, and commodity index position rolls. Differences between corn and live cattle markets are consistent with differences in the contracts’ liquidity and commodity storability.

Original languageEnglish (US)
Pages (from-to)825-840
Number of pages16
JournalAgricultural Economics (United Kingdom)
Volume51
Issue number6
DOIs
StatePublished - Nov 1 2020

Keywords

  • commodity storability
  • forward curve
  • inverse carrying charges
  • price discovery share

ASJC Scopus subject areas

  • Agronomy and Crop Science
  • Economics and Econometrics

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