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Author: Kim Hock See
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Category :
Languages : en
Pages : 224
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Author: Kim Hock See
Publisher:
ISBN:
Category :
Languages : en
Pages : 224
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Author: Amal Dabbous
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Category :
Languages : en
Pages : 121
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This thesis consists of three essays in commodity price dynamics. In the first essay, we embed a staggered price feature into the speculative storage model of Deaton and Laroque (1996). Intermediate goods inventory speculators are added as an additional source of intertemporal linkage which helps us to replicate the stylized facts of the observed commodity price dynamics. The staggered pricing mechanism adopted in this paper can be viewed as a parsimonious way of approximating various types of frictions that increase the degree of persistence in the first two conditional moments of commodity prices. The structural parameters of our model are estimated by simulated method of moments using actual prices for four agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices. The second essay investigates the determinants of the percentage change in commodity prices. We apply the dynamic Gordon growth model technique and conduct the variance decomposition for the percentage change in spot commodity prices to 6 agricultural commodities. The model explains the percentage change in spot commodity prices in terms of the expected present discounted values of interest rate, yield spread, open interest and convenience yield. Empirical results indicate that the model is successful in capturing a large proportion of the variability in the 6 agricultural commodity prices. Moreover, we show that yield spread and open interest help predicting changes in commodity prices. Finally, the third essay evaluates different hedging strategies for eleven commodities. In addition to the traditional regression hedge ratio model (OLS) and the vector error correction model (VECM), we estimate dynamic hedge ratios using the conventional dynamic conditional correlation model (DCC) of Engle (2002) and the diagonal BEKK model (DBEKK) of Engle and Kroner (1995). Moreover, we propose two more advanced models, the DCC model and the DBEKK model that will account for the impact of the growth rate of open interest on market’s volatility and co-movements of commodity spot and futures returns. The empirical analysis shows that adding the growth rate of open interest improves the in-sample hedging effectiveness of the DCC model. Furthermore, the out-of-sample hedging exercise empirical results show that static models present the best out-of-sample hedging performance for 5 of the commodities. The DCC model presents the smallest basis variance for 4 of the commodities. The DBEKK model with the growth rate of open interest performs the best in terms of the basis variance reduction for corn and wheat. Our out-of-sample empirical findings provide important implications for futures hedging and highlight the fact that the use of static models to determine the optimal hedge ratio could be more effective than the use of dynamic hedge ratio models.
Author: Jean-Baptiste Bonnier
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Category :
Languages : en
Pages : 0
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Commodities play an essential role in our economies, and futures markets are central in the determination of commodity prices. This thesis aims to participate to the understanding of the behaviour of commodity prices and to produce forecasts based on recently developed methods. With regards to forecasting, we focus on two different topics for three commodities (Crude oil, Wheat, and Gold): point forecasts at a one-month horizon from a large set of predictors, and one-day ahead volatility forecasts using covariates in a recent model selection method for conditional volatility. With regards to explanation, we are interested in informational efficiency and price discovery in two distinct frameworks: predictive regressions using data that pertain to different theories, and an analysis of the effect of changes in traders' positions on the volatility.
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Languages : en
Pages :
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This dissertaion is comprised of two essays on econometric evaluation of models of commodity futures prices. The first essay develops a frequency- domain volatility bound approach that can be used to evaluate possibly mis-specified models. The proposed method allows us to detect model failures at specific frequencies, for example, the seasonal frequencies, the business cycle frequencies, etc. This is particularly useful when the data exhibit significant cyclical behavior. As an application of the proposed method, the consumption based capital asset pricing models for commodity futures are evaluated using crude oil and corn futures price data. The equilibrium price conditions are derived. Empirical results overwhelmingly reject the consumption based capital asset pricing models across all frequencies. The second essay proposes an econometric method that can be used to determine the appropriate number of factors in affine term structure models. The proposed method estimates the affine model by solving a nonlinear least squares problem, and the number of factors is determined by minimization of a proposed model selection criteria. Simulation study shows that the proposed method can identify the right number of factors under general conditions. Finally, the empirical issue of how many number of factors are needed for crude oil and corn futures prices is examined using the proposed method.
Author: Paul Karapanagiotidis
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Category :
Languages : en
Pages :
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Author: Pavel Teterin
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Category : Electronic dissertations
Languages : en
Pages : 162
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This dissertation includes three essays on volatility and information content of futures markets. This work gives new insight into the structural changes in volatility, the information content of global interest rate futures, and the time-series behavior of the volatility term structure. The first essay examines structural volatility shifts U.S. crude oil and corn futures markets. In trying to capture the interrelations present in the two markets, we take seriously the importance of properly modelling smooth structural shifts. We incorporate trigonometric functions into a multivariate GARCH model of crude and corn futures prices to obtain the empirical volatility response functions and the time-varying correlation coefficient. Although both short-term and long-term futures exhibit shifts in the mean and volatility, volatility shifts do not manifest themselves in the same manner for different maturities. In the second essay, we investigate the term structure of interest rate futures in the US, Eurozone, United Kingdom, and Switzerland and empirically document five unique results. First, implied USD futures rates contain significantly different information compared to USD spot rates. Second, the four interest rate futures contracts contain similar information that is driven by one common component. Third, implied futures rates contain more information regarding future rate changes than return premiums. Fourth, information shifts are associated with macroeconomic conditions and central bank policies. Finally, significant information shifts occurred during the 2013-2015 time frame, which were greater than those of the great recessionary period of 2008-2009. The third essay focuses on the Samuelson hypothesis, a proposition that futures volatility declines with maturity. We study the strength of the Samuelson effect over time in ten most actively traded U.S. commodity futures. Capturing the dynamics of the futures volatility term structure with three factors, we show that in most markets the slope factor is strongly negative in certain periods and only weakly or not at all negative in other periods. Consistent with the linkage between carry arbitrage and the Samuelson hypothesis, we find that high inventory levels correspond to a flatter volatility term structure. We also find that a flatter volatility term structure corresponds to lower absolute futures term premiums.
Author: Pulkit Gupta
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Category :
Languages : en
Pages :
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The aim of this paper is to introduce several volatility models and use these models to predict the conditional variance of the rate of return in Indian commodity future market. This paper chooses the Generalized Autoregressive Conditional Heteroscedasticity (GARCH), E-GARCH, GJRGARCH and APARCH models to analyze the rate of return and considers using three different distributions on error terms: normal distribution, Student's t distribution and skewed t distribution. So this paper mainly captures the forecasting performance with volatility models under different error distributions. Finally, by using AIC, the best model is chosen to predict the conditional variance. Forecasting performance is checked by using Mean Square Error (MSE), Heteroskedasticity Adjusted Squared Error (HASE), Logarithmic Error (LE) and Mincer Zarnowitz Regression. This paper selects three Generic 1st Future Contracts traded on MCX (Multi-Commodity Exchange of India): Aluminum, Copper and Zinc. It is concluded that long memory is an important characteristic of the Aluminum, Copper and Zinc futures volatility returns and should be considered when addressing investment decisions.
Author: Yiyong Yuan
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Category : Agricultural prices
Languages : en
Pages : 104
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The three essays of this dissertation cover issues of understanding and managing price uncertainty across the meat value chain and related futures market. The first essay discussed the implications of recent change in retailing industry's pricing strategy; the second essay described a State Space Model approach estimation of the joint distribution of cash-futures prices and a simulation-based Conditional-VaR approach determination of optimal futures exposure determination in contrast with minimum variance hedge ratio when preference free optimal hedge ratio does not exist; the third essay described the empirical changes in the hog price volatility summarized by a series of long memory GARCH model of the absolute return series in view of the recent industry structural change. The first essay investigated the impact of two coexisting retail price strategies for selling perishable products on the volatility of both the farm-level price and the retailer's margin. The two strategies included the traditional High-Low strategy and the Every-Day-Low-Price (EDLP) pricing strategy. In contrast to non-perishable consumer products, perishable products, which are often of very inelastic demand, obtain their price fluctuations mainly through supply side shocks. A two-retailer model was developed to examine the volatilities of grocery retailers' margin and producer price due to supply shocks for a perishable product. Results indicated a volatility difference exists between EDLP and High-Low retailers' marginal revenue when the two pricing strategies coexist, and as the market share of EDLP format increases this margin volatility difference deepens and farm-level price volatility also increases. The second essay proposed a state space model based estimation of the cash-futures price dependence relationship and a coherent C-VaR-approach optimal futures exposure determination based on simulated data in response to situations where the preference-free optimal hedge ratio no longer exists and the minimum variance hedge ratio is not appropriate. The State Space Model serves as an alternative method to other joint distribution estimation methods. The determined optimal futures exposure showed that the minimum variance hedge ratio discourages hedging. Parallel analyses using existing constant minimum conditional variance (MCV) hedge ratio models and a time-varying MCV ratio based on Multivariate GARCH models was also conducted for comparison. The C-VaR approach optimal futures position exposure reported different optimal futures positions for the "short hedge" and the "long hedge" situations. The third essay analyzed the historical change of the realized price volatility defined as the weekly hog price absolute return from 1973 to 2008 using long memory effect in the mean and variance process. The ARFIMA-FIGARCH/IGARCH Model results confirmed a significant long memory effect in the absolute return for a period around the end of the 1990s with documented structural change. I found no significant long memory effect for any other period. The model result also showed a significant ARCH-M effect that is explained as a fierce industry structural adjustment leading to a more dramatic price volatility change.
Author: Walker Keener Hughen
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ISBN:
Category :
Languages : en
Pages : 208
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Author: Haijiang Zhou
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Category : Commodity futures
Languages : en
Pages :
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Abstract: The three essays of this thesis research several theoretical and empirical issues of the commodity futures markets, specifically, the metals markets at the London Metal Exchange (LME) and the U.S. soybean and corn markets at the Chicago Board of Trade. Chapter two examines the cost of carry theory for five metals at the London Metal Exchange (LME). A quad-variate cointegration model is constructed and empirical results show that a long run relationship exists for cash and 3-month metals futures prices, 3-month interest rates and physical storage costs. The finding reconciles previously inconsistent findings regarding the cointegration of temporal prices in the presence of non-stationary interest rates. Chapter three updates the measurement of the supply of storage model and develops a two-equation system model which consists of the supply of storage equation and the price spread-convenience yield equation. Three stage least squares (3SLS) estimation method and bootstrapping 3SLS are applied to the CBOT soybeans data and results reveal that convenience yield and variability of new crop futures might play key roles in making storage decisions during the crop year. Chapter four develops a new measurement of the stock (inventory)-price relationship for commodity markets by constructing an equally weighted ending stocks-use ratio. A fully specified polynomial function is developed with consideration of three policy regimes due to the 1985 and 1996 US farm policy reforms. Model selection is conducted from both the fitting perspective and the forecast perspective. Results show that grain market analysts may benefit from using the proposed new measurement for forecasting prices. In summary, this study contributes to the understanding of the theoretical and empirical issues of the commodity futures markets, including the cost of carry theory, the supply of storage theory and the convenience yield theory.
