Global and Local Commodity Prices: A Further Look at the Indonesian Agricultural Commodities

Pradita Nareswari and Sigit Wibowo
Additional contact information
Pradita Nareswari: Faculty of Economics and Business, Universitas Indonesia, Indonesia

Capital Markets Review, 2020, vol. 28, issue 1, 65-76

Abstract: Research Question: This paper examines whether global commodity futures prices can be used to enrich the prediction of local commodity spot prices in the absence of local commodity futures prices information. Motivation: Our objective is to investigate whether global prices can be used as a reference if commodity futures prices are unavailable or limited. Indonesia as a producer for several major commodities only has a small number of trades in the commodity futures exchanges which is not sufficient yet to create market liquidity in the local futures market or price reference for local spot trading. Idea: This research proposes the use of global commodity prices to improve the prediction of local commodity prices where the local futures prices are limited or not available. Data: This research employs daily spot prices for CPO (crude palm oil), TSR (technically specified rubber), and cacao, which are obtained from Indonesia Commodity Futures Trading Regulatory Agency (BAPPEBTI) from 2005 to 2017. Global commodity price will use daily commodity futures prices for the same commodity obtained from Thomson Reuters Eikon database. Method/Tools: We conduct the cointegration and non-linear causality tests between Indonesia local commodity spot prices and global commodity futures prices using bi-variate VAR/VECM methodology. Findings: The results show that using Indonesian commodity prices, local commodity spot prices and global commodity futures prices are cointegrated and have bi-directional causality, which contains important information about commodity pricing. Therefore, global commodity futures prices could be used as a reference when local commodity futures prices information is less reliable. Our results also imply that the relationship between local and global commodity markets is efficient, which can be beneficial for market participants to lower the cost for information search. Contribution: This paper expands existing finance literature mainly in emerging economies, particularly for commodity markets where the price information is unavailable or limited.

Keywords: Commodity price; cointegration; causality; Jakarta Future Exchange (search for similar items in EconPapers)
JEL-codes: G15 G32 Q02 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mfa.com.my/wp-content/uploads/2020/04/v28_i1_a4_pg65-76.pdf (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:mfa:journl:v:28:y:2020:i:1:p:65-76

Access Statistics for this article

Capital Markets Review is currently edited by Hooy Chee Wooi

More articles in Capital Markets Review from Malaysian Finance Association
Bibliographic data for series maintained by Capital Market Review ().