Effects of Futures Trading on Spot Price Fluctuations PDF Download
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Author: Ronald Britto
Publisher:
ISBN:
Category : Agricultural prices
Languages : en
Pages : 40
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Book Description
Author: Ronald Britto
Publisher:
ISBN:
Category : Agricultural prices
Languages : en
Pages : 40
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Book Description
Author: Ronald Britto
Publisher:
ISBN:
Category : Agricultural prices
Languages : en
Pages : 36
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Book Description
Author: Brajesh Kumar
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
This study investigates the relationship between futures trading activity and spot market volatility for agricultural, metal, precious metals and energy commodities in Indian commodity derivatives market. This article contributes to the debate whether the futures trading in Indian commodity futures market stabilizes or destabilizes spot market. We explore this issue by modeling contemporaneous as well as dynamic relationship between spot volatility and futures trading activity including trading volume (speculative/day trading) and open interest (hedging). Following Bessembinder and Senguin (1992), we examine contemporaneous relationship through augmented GARCH model in which spot volatility is modeled as GARCH (1,1) process and trading activity is used as explanatory variable. We also decompose futures trading volume and open interest series into expected and unexpected component. The lead-lag relationship between spot price volatility and futures trading volume and open interest is investigated through VAR model. Granger causality tests, forecast error variance decompositions and impulse response function are used to understand the dynamic relationship between these variables. We found that both expected and unexpected futures trading volume affects contemporaneous spot volatility positively. However, in case of agricultural commodities only unexpected volume affects the contemporaneous spot volatility. Granger causality tests, forecast error variance decompositions and impulse response function confirm that the lagged unexpected volatility causes spot price volatility for all commodities. The effect of speculative/day trading activity measured by trading volume on spot market volatility is positive. However, hedging activity measured by open interest does not show significant effect on spot market volatility. We do not find any effect of spot volatility on futures trading activity for most of the commodities.
Author: Gary Robinson
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 48
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Book Description
Author: Atmaram Shridhar Naik
Publisher:
ISBN:
Category : Prices
Languages : en
Pages : 180
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Book Description
Author: David Cohen
Publisher:
ISBN:
Category : Commodity exchanges
Languages : en
Pages : 135
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Book Description
There has been much concern voiced over the possible spot market volatility effects of the new financial futures markets, particularly in a study by the Federal Reserve Board and the Treasury Department regarding Treasury instrument futures markets. This study is designed to provide evidence on the spot price volatility effects of futures trading in 90-day Treasury Bills, The method of analysis is to first identify periods of time that are roughly similar in their overall capital market volatility, but differ in that one period is before TBill futures trading began and its comparable period is after TBill futures trading began. Next several econometric techniques are used to estimate models of interest rate determination. The estimation produces measures of spot TBill rate volatility for each of the comparable periods which are then used in a pairwise fashion to ascertain the spot price volatility effects of futures trading. The interest rate models come from the rather large body of macroeconomics literature dealing with the formation of interest rates. The econometric techniques span different assumptions imposed on the models and each technique provides consistent estimates of the model parameters under the stated conditions. Further, simple analysis of daily and weekly TBill rates is performed to provide continuity with studies of futures market spot price effects in other commodities. The results of all the statistical tests suggest that Treasury Bill futures trading does not increase spot market volatility during relatively stable periods of capital market activity, but is associated with increased spot Treasury Bill market volatility during times when overall capital market conditions are volatile. These results indicate that Treasury Bill futures trading alone does not increase spot market volatility, contrary to the hypothesis that simply the existence of financial futures trading destabilizes the underlying spot market.
Author: Hun Y. Park
Publisher:
ISBN:
Category : Prices
Languages : en
Pages : 56
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Book Description
This paper compares the volatility of spot prices (dealership market) with that of futures prices (auction market) to test the implications of different trading mechanisms for the volatility of prices. First, a natural estimator of the volatility is sued. Using the intraday data of the major Market Index and its futures prices, we show that the volatility of opening prices is higher than that of closing prices not only in the spot market but in the futures market, and that the intraday volatility patterns are U-shaped in both markets. Of particular interest is that futures prices do not appear to be as volatile as spot prices when the natural estimator of volatility is used, to the contrary of the conventional wisdom. We argue that the different volatility patterns during the day are not necessarily due to the different trading mechanisms, auction market versus dealership market. Instead, after developing a simple theoretical model of speculative prices, we show that at least part of the different volatility patterns during the day may be attributable to speculative behavior of investors based on heterogeneous information. In addition, we further investigate the volatilities of spot and futures prices using a temporal estimator of price volatility as an alternative to the natural estimator. Based on the temporal estimator, we cannot find any systematic pattern of volatilities during the day in both spot and futures markets, and that futures prices appear to be more volatile than spot prices in terms of how quickly the price moves beyond a given unit price level, but not in terms of how much the price changes during a given unit time interval. Some policy implications are also discussed.
Author: Holbrook Working
Publisher:
ISBN:
Category : Agriculture
Languages : en
Pages : 36
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Book Description
Author: Lucy F. Ackert
Publisher: South Western Educational Publishing
ISBN: 9780538752862
Category : Investments
Languages : en
Pages : 0
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Book Description
The book begins by building upon the established, conventional principles of finance that you've have already learned in your principles course. The authors then move into psychological principles of behavioral finance, including heuristics and biases, overconfidence, emotion and social forces. You immediately see how human behavior influences the decisions of individual investors and professional finance practitioners, managers, and markets. You also gain a strong understanding of how social forces impact individuals' choices. The book clearly explains what behavioral finance indicates about observed market outcomes as well as how psychological biases potentially impact the behavior of managers. The book's solid academic approach provides opportunities for you to utilize theory and complete applications in every chapter as you learn the implications of behavioral finance on retirement, pensions, education, debiasing, and client management. The book spends a significant amount of time examining how today's practitioners can use behavioral finance to further their professional success.
Author: Barry Goss
Publisher: Routledge
ISBN: 1135047502
Category : Business & Economics
Languages : en
Pages : 227
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Book Description
First published in 1986, this book discusses many important aspects of the theory and practice of Futures Markets. It describes how they, at the time, grew to be an increasingly important feature of the world's major financial centres. Indeed, they adopted the role of being efficient forward pricing mechanisms and this was reflected by the interest of economists in the study of risk, uncertainty and information. Here, the contributors focus on areas that were of concern in the late 1980s such as feasibility, forward pricing and returns, and the modelling of price determination in Futures Markets. Evidence is drawn from twenty-five different commodities representing all the major commodity groups; and from all the world's major centres of Futures Trading.
