Painting Price: Price Discovery in Segmented Markets: Evidence from the Nairobi Coffee Exchange

Gilbert Mbara ()
Additional contact information
Gilbert Mbara: University of Warsaw, Faculty of Economic Sciences

No 2026-19, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: We investigate the dynamics of price discovery between physical spot and financial futures markets for green coffee, a commodity uniquely characterized by the geographical and informational separation of its producers from global financial centers. Using dis-aggregated weekly prices from the Nairobi Coffee Exchange (NCE) auction and corresponding International Coffee Exchange (ICE) futures, we estimate a vector error correction model to quantify the transmission of information. Our findings reveal that price discovery predominantly occurs in the physical spot market, which accounts for approximately 83% and 88% of the information and component shares, respectively. These results challenge the conventional view that futures markets are the primary locus of price formation for homogeneous commodities and highlight the critical role of local supply-demand fundamentals in a major producing region. The analysis further uncovers heterogeneity in price discovery contributions across different coffee grades, providing novel insights into the micro-structure of agricultural commodity markets.

Keywords: price discovery; information shares; cointegration; coffee futures; Nairobi Coffee Exchange; commodity markets (search for similar items in EconPapers)
JEL-codes: C32 C5 C58 E32 Q11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.wne.uw.edu.pl/download_file/d16a0b28-b ... 0c-598bdfdce933/4282 First version, 2026 (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:2026-19

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 Jacek Rapacz ().