The Dynamics of Energy-Grain Prices with Open Interest

Shawkat Hammoudeh, Soodabeh Sarafrazi, Chia-Lin Chang () and Michael McAleer
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Soodabeh Sarafrazi: Lebow College of Business Drexel University

No 776, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper examines the short- and long-run daily relationships for a grain-energy nexus that includes the prices of corn, crude oil, ethanol, gasoline, soybeans, and sugar, and their open interest. The empirical results demonstrate the presence of these relationships in this nexus, and underscore the importance of ethanol and soybeans in all these relationships. In particular, ethanol and be considered as a catalyst in this nexus because of its significance as a loading factor, a long-run error corrector and a short-run adjuster. Ethanol leads all commodities in the price discovery process in the long run. The negative cross-price open interest effects suggest that there is a money outflow from all commodities in response to increases in open interest positions in the corn futures markets, indicating that active arbitrage activity takes place in those markets. On the other hand, an increase in the soybean open interest contributes to fund inflows in the corn futures market and the other futures markets, leading to more speculative activities in these markets. In connection with open interest, the ethanol market fails because of its thin market. Finally, it is interesting to note that the long-run equilibrium (cointegrating relationship), speeds of adjustment and open interest across markets have strengthened significantly during the 2009-2011 economic recovery period, compared with the full and 2007-2009 Great Recession periods.

Keywords: Energy-grain price nexus; open interest; futures prices; crude oil; gasoline; corn; soybean; suger; arbitrage; speculation. (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-ene
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Related works:
Working Paper: The Dynamics of Energy-Grain Prices with Open Interest (2011)
Working Paper: The Dynamics of Energy-Grain Prices with Open Interest (2011)
Working Paper: The Dynamics of Energy-Grain Prices with Open Interest (2011)
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