Analysis of the Relationship between Ethanol Spot and Futures Prices in Brazil

Derick Quintino, Sergio A. David and Carlos E. de F. Vian
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Sergio A. David: Department of Biosystems Engineering, University of São Paulo, 13635-900 Pirassununga, SP, Brazil
Carlos E. de F. Vian: Department of Economics, Administration and Sociology, University of São Paulo, 13418-900 Piracicaba, SP, Brazil
Authors registered in the RePEc Author Service: Carlos Eduardo Freitas Vian

IJFS, 2017, vol. 5, issue 2, 1-10

Abstract: In this work, an investigation and analysis are carried out in order to observe the relationship between ethanol spot and futures prices in Brazil. We adopted the Engle and Granger co-integration approach. Also, we consider the information share method proposed by Hasbrouck in order to examine the market efficiency in price discovery and information transmission. Results show that although the futures market is efficient in price discovery and information transmission, the cash market leads the long-run price discovery process. This suggests that the underlying cause of the dominance of the available market over the futures market can be attributed to the market’s relative concentration in wholesale ethanol distribution due to the formation of marketing pools by the ethanol mills, as well as the small number of distributors that control a significant portion of the market share.

Keywords: ethanol; futures markets; Brazil; price discovery; BM&F-BOVESPA (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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