Modelling and Measuring Price Discovery in Commodity Markets

Isabel Figuerola-Ferretti
Authors registered in the RePEc Author Service: Jesus Gonzalo

DEE - Working Papers. Business Economics. WB from Universidad Carlos III de Madrid. Departamento de Economía de la Empresa

Abstract: In this paper we present an equilibrium model of commodity spot (st) and futures (ƒt) prices, with finite elasticity of arbitrage services and convenience yields. By explicitly incorporating and modelling endogenously the convenience yield, our theoretical model is able to capture the existence of backwardation or contango in the long-run spot-futures equilibrium relationship, st = β2ƒt + β3 When the slope of the cointegrating vector β2 > 1(β2

Keywords: Backwardation; Cointegration; Commodity; markets; Contango; Convenience; yield; Futures; prices; Permanent-Transitory; decomposition; Price; discovery (search for similar items in EconPapers)
JEL-codes: C32 C51 G13 G14 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Modelling and measuring price discovery in commodity markets (2010)
Working Paper: Modelling and measuring price discovery in commodity markets (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wbrepe:15951

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