Measuring price discovery in the European wheat market using the partial cointegration approach

Teresa Vollmer, Helmut Herwartz and Stephan von Cramon-Taubadel

European Review of Agricultural Economics, 2020, vol. 47, issue 3, 1173-1200

Abstract: Understanding price discovery in agricultural spot and futures markets is important for market participants and policy makers, because it can contribute to better management decisions and more informed policy debates on market regulation. Combining partial cointegration with state space modelling, we generate time-varying price discovery metrics for the European wheat market that allow for shifts in the long-run relationship. We find that the futures market dominates price discovery in terms of efficiency, but that this dominance is reduced in phases of higher price volatility. We find evidence of persistent shocks in the long-run relationship between spot and futures prices that appear to be related to variations in the quality of the wheat harvest, and to the concatenation of the futures prices.

Keywords: price discovery; partial cointegration; state space modelling; wheat; futures and spot markets (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (10)

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