Price Transmission across Commodity Markets: Physical to Futures

Gilbert Mbara

No 2020-07, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: Primary commodity prices are generally determined in dual markets: a physical--spot market dominated by supplier--producers and a forward--futures market where consumers, producers and speculators interact. While the futures market operates on an almost continuous basis, the spot market only opens in predetermined short periods of time over which the state of supply and demand is revealed. This poses a challenge for the question of price dynamics: which market leads/follows and where does price discovery occur? We perform an empirical analysis using spot and futures coffee prices and find that most price information originates from the futures markets. Shocks to the spot price are quickly integrated into the market prices, with the effect of the shock quickly dying out or a new equilibrium being attained. A shock to the futures price almost always leads to a permanent change in prices leading to a new equilibrium.

Keywords: Price transmission; futures markets; VECM; Cointegrated VARMA (search for similar items in EconPapers)
JEL-codes: C32 C5 C51 C58 E32 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2020
New Economics Papers: this item is included in nep-agr, nep-dcm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.wne.uw.edu.pl/index.php/download_file/5455/ First version, 2020 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2020-07

Access Statistics for this paper

More papers in Working Papers from Faculty of Economic Sciences, University of Warsaw Contact information at EDIRC.
Bibliographic data for series maintained by Marcin Bąba ().