Price leadership and information transmission in Australian water allocation markets

Robert Brooks and Edwyna Harris

Agricultural Water Management, 2014, vol. 145, issue C, 83-91

Abstract: This paper explores relationships in price and volumes across two trading zones of the water allocation market in the Goulburn-Murray Irrigation District in Northern Victoria. Previous papers have explored the reasons for price variations across trading zones within this region, our focus is to add to this literature by analysing how information is incorporated into market prices across different zones that can contribute to the presence of price leadership. Market prices reflect the incorporation of new information and evidence from financial markets suggests that this process leads to a pervasive lead–lag relationship across alternative markets offering similar products. As a result, markets with leading prices are thought to incorporate new information first. We examine if this lead–lag relationship exists in the far less liquid water market. Our analysis shows that the most actively traded of the two trading zones (the Greater Goulburn trading zone) plays a key role in price leadership. We postulate that the nature of production in the different zones contributes to this lead–lag relationship in prices because crops tend to be zone specific and each crop has different water requirements both within and between seasons. This drives the most active trading zone to play a greater role in the price discovery process.

Keywords: Water markets; Price leadership; Australia; Murray–Darling Basin (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:agiwat:v:145:y:2014:i:c:p:83-91

DOI: 10.1016/j.agwat.2013.10.010

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