Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin?
Martin T. Bohl and
Christian Gross ()
No 3915, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster
It is still an unanswered question how much trading activity is needed for efficient price discovery in commodity futures markets. For this purpose, we investigate the price discovery process of two thinly traded agricultural futures contracts traded at the European Exchange in Frankfurt. Our empirical results show that the trading volume threshold which is necessary to facilitate efficient price discovery is very low. As our findings are based on constant and time-varying vector error correction models, we also show that neglecting time-variation in the parameters can lead to misleading results, especially for thinly traded markets.
Keywords: Thinly Traded Markets; Price Discovery; Trading Volume Threshold; Information Shares; Kalman Filter (search for similar items in EconPapers)
JEL-codes: G12 G13 Q14 (search for similar items in EconPapers)
Pages: 29 pages
New Economics Papers: this item is included in nep-mst
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Journal Article: Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin? (2016)
Working Paper: Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:3915
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