EconPapers    
Economics at your fingertips  
 

Price efficiency and speculative trading in cocoa futures markets

Michele Nardella

No 7970, 81st Annual Conference, April 2-4, 2007, Reading University, UK from Agricultural Economics Society

Abstract: In recent years a number of market participants called into question the efficiency of the price discovery mechanism in commodity futures markets. They believe that speculators move commodity futures markets away from their fundamentals by distorting prices and exacerbating volatility. The smoking gun of these allegations is the empirical observation that speculative buying (selling) precedes movements in the cocoa futures markets. Among soft commodities, the cocoa futures market represents an interesting case study. In the last decades, speculators' open interest is increased by nearly 4 times, fuelling the apprehension of practitioners and market analysts. This paper evaluates the efficiency of the price discovery mechanism in cocoa futures markets. Results show that the price discovery mechanism in both LIFFE and NYBOT cocoa futures markets is efficient. In addition, they rule out the existence of any casual relationship between speculative activity and cocoa prices (i.e. level and volatility) at the least for the NYBOT. This evidence supports the hypothesis that successful speculators are reacting quicker than any other market participant to new information emerging from the market. That is why profitable speculative buying (selling) occurs just before the market makes a move.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 34
Date: 2007
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
https://ageconsearch.umn.edu/record/7970/files/cp07na01.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:ags:aes007:7970

DOI: 10.22004/ag.econ.7970

Access Statistics for this paper

More papers in 81st Annual Conference, April 2-4, 2007, Reading University, UK from Agricultural Economics Society Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().

 
Page updated 2021-01-16
Handle: RePEc:ags:aes007:7970