an economic efficiency study on different regions of ghana via slack based data envelopment analysis and regression analysis in this article we evaluate the efficiency of the 10 different regions of ghana using slack based data envelopment analysis a nonparametric linear programming technique furthermore we analyse the variable effects on the efficiency of the regions by various regression models using bootstrap sampling technique the data come from the 1991 1992 and 1998 1999 ghana living standards survey our results show that wealth is not strongly related to efficiency for example the study indicates that the brong ahafo region is the most efficient region but not the most wealthy in ghana generally urban regions are not found to be among the most efficient regions due to the high expenditures the regression analysis shows that female heads of household have an overall positive effect on efficiency in addition any form of education obtained is also found to have a significant positive effect on efficiency

a comparative study of efficiency in european banking this paper investigates whether there has been an improvement in and convergence of productive efficiency across european banking markets since the creation of the single internal market using efficiency measures derived from dea estimation the determinants of european bank efficiency are evaluated using the tobit regression model approach the established literature on modelling the determinants of bank efficiency is then extended by recognizing the problem of the inherent dependency of dea efficiency scores when used in regression analysis to overcome the dependency problem a bootstrapping technique is applied overall the results suggest that since the eu s single market programme there has been a small improvement in bank efficiency levels although there is little evidence to suggest that these have converged the results also suggest that inference on the determinants of bank efficiency drawn from non bootstrapped regression analysis may be biased and misleading

a note on interest parity and the supply of arbitrage funds the divergence of the actual forward premium on foreign exchange from that dictated by the principle of interest rate parity can arise from two separately identifiable causes 1 an equilibrium position as indicated by the interest parity principle has not been reached or 2 that the principle itself is not a correctly specified equilibrium condition it is the purpose of this note to offer a revised specification of the interest parity condition and to determine whether this version approximates more closely the actual premium as determined in the market it should be made clear however that this is a partial analysis and does not deal with the impact of other forces for example speculation on the forward premium as a result a complete model of the spot and forward markets for foreign exchange such as stein s 1965 is not attempted here in general the principle of interest parity maintains that in equilibrium

determination of the international maize price what is the growing role of brazil and ukraine this paper examines the relationships among maize prices for four countries to determine if newly emerging exporters brazil and ukraine influence the international price of maize our work focuses on each market s participation in the price discovery process rather than trying to determine a price leader we find that the united states plays the largest role in price discovery followed by argentina brazil and ukraine we also search for export thresholds and find that ukraine s contribution to price discovery rises slightly when an export threshold of 2 3 million tons is reached no export thresholds were found for brazil export thresholds for argentina were found but only have a minor impact on price relationships we also found that price relationships vary considerably across seasons of the year

the ethiopian commodity exchange and spatial price dispersion abstract in this article we study the impact of an institutional intervention on market efficiency in ethiopia more specifically we analyze to what extent the ethiopian commodity exchange ecx in combination with regional warehouses have contributed to a reduction in price spreads between regional markets our hypothesis is that warehouses connected to the ecx reduce the dispersion between export prices and local retail prices in different coffee growing areas as well as the dispersion between export prices and local retail prices in different coffee growing areas by doing so the ecx has the potential to improve the market efficiency to identify the causal effect we combine retail price data with information on the gradual rollout of warehouses connected to the ecx from 2007 to 2012 our results suggest that when two markets both have access to an operating warehouse the average price spread is 0 86 1 78 etb lower than it is for markets where at least one part lacks warehouse access this is a substantial reduction considering that the average price spread over the full period is 3 33 etb the main results are robust to various econometric specifications and our analysis thus suggests that local warehouses connected to the ecx have indeed improved market efficiency

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

the relationship between spot and futures oil prices do structural breaks matter abstract this paper examines the effect of structural breaks on the spot futures oil prices relationship we explore the impact of structural breaks on four critical issues including cointegrating relationships market efficiency under the expectation hypothesis and the no arbitrage rule causalities and forecasting performance of futures oil volatility as far as our empirical results exhibit the structural break we detect endogenously causes some influences on these issues which is in sharp contrast to the conclusions of existing studies our findings offer some implications and suggestions to researchers investors and policymakers

price movements and price discovery in futures and cash markets r isk transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity working 1962 evans 1978 p 80 and silber 1981 risk transfer refers to hedgers using futures contracts to shift price risk to others price discovery refers to the use of futures prices for pricing cash market transactions working 1948 wiese 1978 p 87 and lake 1978 p 161 the significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities this paper examines the characteristics of price movements in cash or spot markets and futures markets for storable commodities section ii presents an analytical model of simultaneous price dynamics which suggests that over short intervals of time the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract greater elasticity fosters more highly correlated price changes and thereby facilitates the risk transfer function the elasticity of supply of arbitrage services is constrained by among other things storage and transaction costs thus futures contracts will not in general provide perfect risk transfer facilities over short time horizons the essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices hoffman 1932 pp 258259 the model in section ii provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery in section iii we develop a model based on section ii which is appropriate for estimating the lead lag relationship between cash prices and futures prices section iv presents empirical estimates of the parameters of the model for seven different storable commodities wheat corn oats frozen orange juice concentrates copper gold and silver the cost of arbitrage between cash and futures differs across these commodities for this reason we are not surprised to find inter commodity differences in the correlation of short run price changes and in the substitutability of futures contracts for cash market positions with respect to the price discovery function of futures markets we find that while futures markets dominate cash markets cash prices do not merely echo futures prices there are reverse information flows from cash markets to futures markets as well

a stochastic dea study of hotel efficiency this current study is the first to apply stochastic data envelopment analysis sdea approach to assess the efficiency of hotels the determinants of hotel efficiency were also investigated employing the tobit regression model approach the sdea results show that the sdea efficiency measures are higher than the deterministic ones and the greater the stochastic variability of outputs the closer the envelope moves successively to any given observation and the efficiency score approaches one the optimal solution to sdea involves the presence of some buffer slack of all outputs in applications involving practice production situation such buffer slack can be interpreted as the firms need to hold inventory excess capacity and organizational slack against stochastic uncertainty of market environment our results also indicate that resort hotels achieve better efficiency than those in metropolitan areas and operating as part of a chain is not the main determinant of the efficiency of international touri

a comparison of petroleum futures versus spot prices as predictors of prices in the future abstract even though studies have indicated that the futures market leads the spot market in price discovery this paper hypothesizes that the predictive significance of each should be the same a number of different statistical tests are presented to test this hypothesis when deseasonalized data is employed the predictive significance of each series is found to be the same but when actual prices are employed futures prices did correctly anticipate the observed seasonal pattern

option listing and stock returns abstract this article examines the effect of option introductions on the underlying stocks in addition to the price increase and volatility decrease that take place when new options are listed we obtain and explain the following new empirical results i an increase in the value of the market around the listing dates of new options ii an increase in the value of an industry index which excludes the optioned stocks iii the dissipation of the price and volatility effects in recent periods and iv the existence of an announcement effect in one subperiod of our sample and its dissipation in recent periods

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

a note on the impact of options on stock return volatility abstract this paper measures the impact of option introductions on the return variance of underlying stocks past research generally finds a significant reduction in stock return variance following the listing of options through 1986 using a more extensive sample i compare changes in the return variance of optioned stocks to changes in the return variance of a control group since the average change in the control group is statistically indistinguishable from the average change in the optioned stocks i conclude that option introductions do not significantly affect stock return variance

an investigation of the determinants of profitability in new zealand manufacturing industries in 1986 87 the empirical investigation of the structure condust performance relationship has had to grapple with the problem that higher than usual profitability might arise from superior production efficiency or alternatively from markets subject to lower competitive pressures as such the nature of investigation has evolved over time to include the market power efficiency debate and the new industrial organisation emphasis on the joint determination of profitability and market structure the purpose of this paper is to present some new zealand evidence with a unique feature being to include a measure of firm level efficiency in a disaggregated model estimated using firm level data the results suggest both market power and efficiency play a role in determining profitability although efficiency dominates

dominance stochastic models in data envelopment analysis abstract in this paper stochastic models in data envelopment analysis dea are developed by taking into account the possibility of random variations in input output data and dominance structures on the dea envelopment side are used to incorporate the modelbuilder s preferences and to discriminate efficiencies among decision making units dmus the efficiency measure for a dmu is defined via joint dominantly probabilistic comparisons of inputs and outputs with other dmus and can be characterized by solving a chance constrained programming problem deterministic equivalents are obtained for multivariate symmetric random errors and for a single random factor in the production relationships the goal programming technique is utilized in deriving linear deterministic equivalents and their dual forms the relationship between the general stochastic dea models and the conventional dea models is also discussed

price discovery in the u s treasury market the impact of orderflow and liquidity on the yield curve we examine the role of price discovery in the u s treasury market through the empirical relationship between orderflow liquidity and the yield curve we find that orderflow imbalances excess buying or selling pressure can account for as much as 26 percent of the day to day variation in yields on days without major macroeconomic announcements the effect of orderflow on yields is permanent and strongest when liquidity is low all of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve

reexamining intraday simultaneity in stock index futures markets abstract this note examines three empirical examples involving intraday dynamic relationships associated with stock index futures markets researchers often employ a vector autoregressive var model to analyze such high frequency transactions data while such a model can provide useful information regarding the nature of causal priority inherent in the data it is not the proper model to investigate the structural relationships of interest because it omits the contemporaneous interaction on the other hand a var model specification which is altered to incorporate simultaneity may enable the data to reveal the structural relationships of interest

an analysis of price discovery between bitcoin futures and spot markets abstract this paper analyzes the bitcoin price discovery process we collect data on futures and spot prices for the period december 2017 to may 2018 and compute hasbrouck s information share and gonzalo and granger s common factor component to quantify the contribution of each market to the price discovery process both measures coincide in suggesting that the bitcoin futures market dominates the price discovery process we also find that both prices are driven by a common factor that is given by a weighted combination of the futures and spot market finally we observe that deviations from the equilibrium condition equating the futures and spot log price have predictive ability for the return on the bitcoin spot price but not on the futures price

optimal hedging and spreading in cointegrated markets abstract assuming that cash and futures markets are cointegrated this article derives the optimal multiperiod hedging strategy the model is then extended to the case of two futures markets optimal intramarket or intermarket spreading strategy is provided therein

how smooth is price discovery evidence from cross listed stock trading abstract the adjustment to parity can be nonlinear for a cross listed pair convergence may be quicker when the price deviation is sufficiently profitable we propose a threshold error correction model ecm to gauge the market respective information shares of canadian listings traded on the toronto stock exchange tsx and the new york stock exchange nyse since dynamics may alternatively be gradual we further generalize the threshold framework to a smooth transition ecm the empirical implications are as follows first the tsx and the nyse appear to have integrated over time second parity convergence accelerates upon discounts on the cross listings on the nyse third we find a larger feedback from the nyse if the price gap exceeds the threshold required arbitrage return fourth informed traders tend to cluster on the nyse upon discounts on the cross listings fifth information share and threshold are affected by the relative degree of private information market friction and liquidity measures firm level characteristics and aggregate risks

the role of trader positions in spot and futures prices for wti abstract we extend the analysis of causal relations between trader positions and oil prices and the process of price discovery by estimating a cointegrating vector autoregression cvar model that expands the cash and carry relation between spot and futures prices to quantify long and short run relations among oil prices trader positions interest rates and oil inventories results indicate that oil inventories and trader positions are needed to generate cointegration between spot and futures prices the presence of trader positions and oil inventories suggest that both play a role in price discovery furthermore the cointegrating relation for price loads into the equation for both oil prices and trader positions this suggests a bi directional simultaneous adjustment process between oil prices and trader positions this expands the unidirectional causal relation from oil prices to trader positions that is generated by previous studies additional results suggest that price discovery occurs in the market for heavily traded near month futures contracts but discovery for thin far month futures markets occurs in the spot market together these results suggest mechanisms by which speculation could affect oil prices but the results presented here are moot regarding their effects

how reliable are hog futures as forecasts the chicago mercantile exchange hog futures contract was revamped in 1997 and it is one of the largest futures markets for a nonstorable commodity the literature is divided on whether or not futures prices for nonstorables provide reliable forecasts of cash prices we find that from 1998 to 2004 the hog futures market was an unbiased predictor of cash prices copyright 2008 oxford university press

order consolidation price efficiency and extreme liquidity shocks we show that the consolidation of orders is important for producing efficient prices especially during times of high liquidity demand the nyse s centralized opening call market performs better than nasdaq s decentralized opening process on typical trading days the nyse is much better than nasdaq on witching days when index arbitrage activity subjects s p 500 stocks to large predictable and mostly informationless order flow around quarterly futures contract expirations nasdaq opening price efficiency improves to nyse levels once nasdaq initiates a consolidated opening call in november 2004 but prices on the decentralized nasdaq remain less efficient at other times of day

international price discovery in finnish stock index futures and cash markets abstract this paper investigates empirically how the information of the world s stock markets is reflected in the thin finnish stock index futures and cash markets the world wide returns seem to have a significant leading ability for predicting finnish stock index futures returns however this kind of causal relation is not observed between the world wide and stock market returns the finnish stock index futures returns then show significant granger causality with finnish stock market returns the stock market being the lagging one the relationship is improved by allowing the association between markets to be different for positive and negative returns the findings of this study suggest short selling restrictions and other market frictions to be a significant factor leading to a delay in the pricing process in the stock market

price discovery in energy markets abstract in this study we empirically analyze the price discovery process in the futures and spot markets for crude oil heating oil and natural gas using daily closing prices we use two different information share measures that are based on the methods proposed by gonzalo and granger 1995 and lien and shrestha 2014 both measures indicate that almost all the price discovery takes place in the futures markets for the heating oil and natural gas however for the crude oil the price discovery takes place both in the futures and spot markets as a whole our study indicates that futures markets play an important role in the price discovery process

the dynamics of a nonlinear relationship between crude oil spot and futures prices a multivariate threshold regression approach abstract this paper segments daily data from january of 1986 to april of 2007 into three periods based on certain important events both periods i and ii indicate that the spot prices in general are higher than futures prices as was well known in the literature only period iii 2001 9 11 2007 4 30 displays a reverse phenomenon futures prices in general exceed spot prices when the absolute value of a basis futures spot is greater than the threshold value in the arbitrage area regime 1 and 3 at least one of the error correction coefficients representing adjustment towards equilibrium is statistically significant that is there exists a tendency in the oil market in which prices move toward equilibrium with respect to the short run dynamic interaction between spot price change st and futures price change ft our results indicate that when the spot price is higher than futures price and the basis is less than certain threshold value regime 3 there exists at least one causal relationship between st and ft conversely when the futures price is higher than spot price and the basis is higher than certain threshold value regime 1 there exists at least one causal relationship between st and ft finally we use the method suggested by diebold and mariano diebold francis x mariano roberto s 1995 comparing predictive accuracy journal of business and economic statistics 13 3 253 263 to compare the predictive power between the linear and nonlinear models our empirical results indicate that the in sample prediction of the nonlinear model is clearly superior to that of the linear model

the determinants of efficiency the case of the spanish industry the aim of this paper is to analyse the factors explaining the technical efficiency of spanish industrial sectors during the period 1991 1994 using the survey of business strategies sbe of the ministry of industry and energy it analyses whether efficiency can be explained by factors external to the firm such as the degree of competition in the markets in which it operates characteristics of the firm size organization advantages of location participation of public capital etc as well as the effects of dynamic disturbances that may affect the degree of utilization of the productive capacity

why does the option to stock volume ratio predict stock returns we use data on signed option volume to study which components of option volume predict stock returns and resolve the seemingly inconsistent results in the literature we find no evidence that trades related to synthetic short positions in the underlying stocks contain more information than trades related to synthetic long positions purchases of calls that open new positions are the strongest predictor of returns followed by call sales that close out existing purchased call positions overall our results indicate that the role of options in providing embedded leverage is the most important channel why option trading predicts stock returns

the price effect of option introduction this paper examines the price effect of option introduction from 1974 to 1980 the introduction of individual options causes a permanent price increase in the underlying security beginning approximately three days before introduction the price effect appears to be associated with introduction and not announcement throughout the sample period excess returns volatility declines with option introduction systematic risk is unchanged there is a positive relation between the price increase and a measure of activity in the options market copyright 1989 by american finance association

integration of physical and futures prices in the us natural gas market this paper examines the integration between the prices of different types of physical upstream end use and futures contracts of natural gas in the us for the period of june 1990 dec 2014 to examine the equilibrium relationship between physical and futures prices several cointegration tests are applied the study finds that a futures prices are cointegrated with wellhead power industrial and citygate prices b ng1 futures prices granger cause all physical prices c upstream physical prices granger cause futures prices d shocks to wellhead prices are the only ones among physical prices with persistent long term effects e shocks to futures prices have persistent effects on all physical prices f futures contracts with a longer time to maturity explain a larger portion of commercial gas price variations and g commercial and residential prices show different behavior compared to other physical prices in multiple tests

trading volume definitions data analysis and implications of portfolio theory we examine the implications of portfolio theory for the cross sectional behavior of equity trading volume two fund separation theorems suggest a natural definition for trading activity share turnover if two fund separation holds share turnover must be identical for all securities if k 1 fund separation holds we show that turnover satisfies an approximately linear k factor structure these implications are examined empirically using individual weekly turnover data for nyse and amex securities from 1962 to 1996 we find strong evidence against two fund separation and a principal components decomposition suggests that turnover is well approximated by a two factor linear model if price and quantity are the fundamental building blocks of any theory of market interactions the importance of trading volume in modeling asset markets is clear although most models of asset markets have focused on the behavior of returns predictability variability and information content their implications for trading volume have received far less attention in this article we derive the implications of various asset market models for volume and quantify their importance using recently available volume data for individual securities from the center for research in security prices crsp although the volume literature is voluminous 1 we hope to add to this literature in two ways first we develop the volume implications of popular asset market models rather than construct more specialized and often stylized models to

franchising agency problems and the cost of capital explanations for franchising are examined in the context of the us hotel industry the study is distinct from previous research on franchising because it explicitly recognizes the existence of three organizational forms whereas previous research has focused exclusively on two of these three forms the two organizational forms examined in previous work are franchising and company ownership the additional organizational form is company management investor ownership which involves management by the franchisor and ownership by outside investor groups a plausible explanation for the existence of the last organizational form is based on the availability of low cost capital from non chain sources

time varying price discovery of the new third board market in china does the market making system help this paper examines whether the market making system helps to improve the price discovery ability of new third board ntb market in china we first estimate the time varying coefficients error cor

a reinterpretation of the modern theory of forward exchange rates the modern theory of forward exchange rate determination mt has been widely although not unanimously accepted as an improvement over the traditional interest rate panty theory irpi the latter theory contends that in equilibruim the forward rate f will equal except for transactions costs the interest panty forward rate f 1 covered interest arbitrage cia is a pnmary but as shall be seen not the only force insunng this equilibnum condition for the forward market for example if f exceeds f then covenng arbitrageurs borrow or forego lending in the domestic country purchase the foreign currency on the spot market lend abroad at the foreign interest rate and simultaneously sell the foreign currency including interest on the forward market these transactions cause f to decline and or f to increase until equilibnum is restored motivated in part by early empincal studies of the irpi which found evidence of apparent deviations of f from f and by the intuitively appealing argument that expectations or speculation can also influence f the mt suggests that the equilibrium forward rate is better explained as a weighted average of f and the expected

asymmetric adjustments in the ethanol and grains markets this paper examines the long and short run asymmetric adjustments and pairs trades for nine pairs of spot and futures prices itemized as three own pairs for three different bio fuel ethanol types three own pairs for three related agricultural products namely corn soybeans and sugar and three cross pairs that included hybrids of the spot price of each of the agricultural products and an ethanol futures price most of the spreads asymmetric adjustments generally occur during narrowing the three ethanol pairs that contain the ecbot futures with each of chicago spot new york harbor spot and western european rotterdam spot show different long run adjustments arbitrage profitable opportunities and price risk hedging capabilities the asymmetric spread adjustments for the three grains are also different with corn spread showing the strongest long run widening adjustment and sugar showing the weakest narrowing adjustment among others the empirical analysis indicates the importance of potentially hedging the spot prices of agricultural commodities with ethanol futures contracts which sends an important message that the ethanol futures market is capable of hedging price risk in agricultural commodity markets the short run asymmetric adjustments for individual prices in the nine pairs with the exception of the corn own pair underscore the importance of futures prices in the price discovery and hedging potential particularly for ethanol futures

hedging effectiveness of fertilizer swaps the fertilizer swaps market is a potential tool to protect against fertilizer price risk the swaps evaluated here are cash settled using the fertilizer index hedge ratios and hedging effectivenes

price discovery in oil markets a time varying analysis of the 1990 1991 gulf conflict abstract this study examines the behaviour of crude oil spot and futures markets in the uk and usa during the 1990 1991 gulf conflict the objective is to investigate the relative ability of spot and futures markets to impound information this is achieved with the use of a generalized model of price discovery which represents a synthesis of the two most commonly used methodologies in its field emphasis is placed on the time varying nature of price discovery relationships results indicate that such relationships are strongly temporal these findings offer new insights into the nature of relationships between spot and futures markets

index arbitrage and nonlinear dynamics between the s p 500 futures and cash we use a cost of carry model with nonzero transaction costs to motivate estimation of a nonlinear dynamic relationship between the s p 500 futures and cash indexes discontinuous arbitrage suggests that a threshold error correction mechanism may characterize many aspects of the relationship between the futures and cash indexes we use minute by minute data on the s p 500 futures and cash indexes the results indicate that nonlinear dynamics are important and related to arbitrage and suggest that arbitrage is associated with more rapid convergence of the basis to the cost of carry than would be indicated by a linear model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

stock index futures mispricing profit opportunities or risk premia this paper reports empirical evidence on stock index futures pricing based on about four years of synchronous hourly data from the uk reported index values are based on firm quotes identified arbitrage opportunities are therefore actually exploitable and economically significant the analysis controls for cash market settlement procedures the results show that ex ante trading rules would have generated attractive profits after transaction costs and after the risks of dividend uncertainties marking to market and possible delays in execution are considered the far contract and the near contract tend to be mispriced in the same direction the mild tendency of futures to be overpriced in rising markets and underpriced in falling markets appears to be unimportant finally significant positive relationships are observed between the absolute magnitude of mispricing and time to maturity and between mispricing and index option implied volatility

distributional predictability between commodity spot and futures evidence from nonparametric causality in quantiles tests abstract unbiasedness and informational efficiency of futures markets under different market conditions is a claim that still remains unsettled in the theory of non arbitrage and asset pricing and in empirics as well this study investigates this claim using a novel causality in quantile model of balcilar et al 2016 for two energy commodities crude oil and natural gas and two precious metals gold and silver the model estimates causalities in mean and variance between spot and futures market in a time varying context conditioning on the states of the markets represented by the quantiles of the conditional distribution of the dependent variable the causality in return is asymmetric and unidirectional from futures to spot market for all commodities that means the predictability of the futures market due to its informational efficiency is strong in the normal market and declines when the spot market enters into extreme bearish and bullish conditions the causality in variance is bi directional in the normal to bull markets except for natural gas where it is unidirectional from futures to spot only it is a confirmation of the risk management and price discovery role of futures market lack of causality in the bear market entails some kind of disconnectedness between the spot and futures markets in a bad market where intervention is called for from the exchange and regulators to restore stability in the spot and futures market dynamics although economic uncertainty is found to have no impact on the causality in mean except gold however the causality in variance is influenced in the case of gold and crude this is a kind of reaffirmation of the fact that under economic uncertainty futures contracts are used for hedging under different market conditions however the causality between commodity spot and futures are resilient to exchange rate

assessing the role of futures position substitutability in a monthly slaughtered pork factor demand by us processors a cointegrated var model approach abstractthis article combines cointegrated var modelling with basic neoclassical production microeconomics in a new way that tests for and illuminates the empirical nature of the monthly us pork processing sector s factor demand for slaughtered pork statistical evidence strongly suggests that the us pork processing sector has a hicksian cobb douglas slaughtered pork demand that arises from applying shephard s lemma to the sector s cost function and that us pork processors treat slaughtered pork and related futures positions as close factor substitutes in the wake of major and ongoing futures market events and trends this study establishes and statistically tests a theoretical link between futures price movements and impacts on the underlying slaughtered pork market through monthly formation of us pork processors factor demand for slaughtered pork evidence suggests that demand agents shift between demands for the two substitutes based on movements in the slaughter futures price ratio that results in

how well does the weighted price contribution measure price discovery abstract the weighted price contribution wpc is a popular measure for price discovery this paper examines the theoretical properties and empirical performance of the wpc in sequential markets the benchmark used to judge the wpc is the information share is measure based on the variation of the efficient price we derive the asymptotic value of the wpc which is a complex combination of the unconditional means and variances of the returns of sequential markets under the assumption of normality we show that the wpc correctly converges to the is only when the returns are uncorrelated with zero means our theoretical predictions based on normality hold well in simulations and in empirical analyses of the overnight price discovery for the s p 100 index and its constituent stocks as the correlation between overnight and daytime returns increases the wpc deviates from the is substantially

out of sample testing price discovery in commodity markets the case of soybeans price discovery a central function of futures markets has been usually tested in sample by studying the common stochastic trend between spot and futures prices instead to evaluate futures as anticipatory prices we develop a forecast approach to out of sample test price discovery in a multivariate framework we apply it to the soybeans market results indicate futures prices as the best available predictors of future spot prices although this finding holds only on average and for certain periods other models show forecasting gains

cross border listings and price discovery evidence from u s listed canadian stocks we examine the contribution of cross listings to price discovery for a sample of canadian stocks listed on both the toronto stock exchange tse and a u s exchange we nd that priceson the tse and u s exchange are cointegrated and mutually adjusting the u s share of price discovery ranges from 0 2 percent to 98 2 percent with an average of 38 1 percent the u s share is directly related to the u s share of trading and to the ratio of proportions of informative tradeson the u s exchange and the tse and inversely related to the ratio of bid ask spreads with the enhanced globalization of nancial markets the number of non u s rms cross listing shares on a u s exchange has substantially increased attracting non u s listings is now a top priority of the u s stock exchanges at the end of 2000 420 non u s rmswere listed on the new york stock exchange nyse the number of foreign rmslisted on nasdaq waseven higher the popularity of international cross listings has prompted many academic studies on the topic 1 most of these studies focus on the bene ts of international cross listings including the reduced cost of capital and the enhanced liquidity of a rm s stock studiessuch asalexander eun and janakiramanan 1987 1988 and foerster and karolyi 1993 suggest that the cost of capital declines because the portion of the risk premium that compensates for cross border investment barriers dissipates miller 1999 and foerster and karolyi 1999 propose increased investor recognition as another possible explanation several studies examine changes in trading volume and costs due to international cross listing foerster and karolyi 1998 nd that the bid ask spreads in canada decrease after the cross listing of canadian stocks in the united states domowitz glen and madhavan 1998 suggest that the impact of cross listing is complex and depends on the degree of quote transparency that is the extent to which price information is observable in the two markets smith and so anos 1997 examine if cross listing is a zerosum game with increased trading in the united states being oiset by reduced

some recent developments in futures hedging the use of futures contracts as a hedging instrument has been the focus of much research at the theoretical level an optimal hedge strategy is traditionally based on the expected utility maximization paradigm a simplification of this paradigm leads to the minimum variance criterion although this paradigm is quite well accepted alternative approaches have been sought at the empirical level research on futures hedging has benefited from the recent developments in the econometrics literature much research has been done on improving the estimation of the optimal hedge ratio as more is known about the statistical properties of financial time series more sophisticated estimation methods are proposed in this survey we review some recent developments in futures hedging we delineate the theoretical underpinning of various methods and discuss the econometric implementation of the methods

does option trading have a pervasive impact on underlying stock prices the question of whether and to what extent option trading impacts underlying stock prices has been a focus of intense interest since options began exchange based trading in 1973 despite considerable effort no convincing evidence for a pervasive impact has been produced a recent strand of theoretical literature predicts that rebalancing by traders who hedge their option positions increases decreases underlying stock return volatility when these traders have net written purchased option positions this paper tests this prediction and finds a statistically and economically significant negative relationship between stock return volatility and net purchased option positions of investors who are likely to hedge hence we provide the first evidence for a substantial and pervasive influence of option trading on stock prices

evidence on the effect of option expirations on stock prices 1987 evidence on the effect of option expirations on stock prices financial analysts journal vol 43 no 1 pp 55 57

the market microstructure of the european climate exchange abstract this paper analyzes the market microstructure of the european climate exchange the largest eu ets trading venue the ecx captures 2 3 of the screen traded market in eua and more than 90 in cer volume growth has averaged 277 in eua between 2005 and 2009 and 724 in cer since 2007 spreads range from 0 0188 to 0 0406 for eua and 0 0276 to 0 0796 for cer the median proportion of the spread due to adverse selection reaches 76 for eua and 75 for cer realized volatility bid ask spreads and adverse selection costs decline with verified emission releases market impact estimates imply that an average trade will move the eua market by 1 06 euro centimes and the cer market 1 45 the ecx is providing between 75 and 88 of price discovery for eua trading and between 64 and 72 for cer we find imbalances in the order book help predict returns for up to three days a simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact

information processing constraints and asset mispricing i analyse a series of natural quasi experiments centred on betting exchange data on the wimbledon tennis championships to determine whether information processing constraints are partially responsible for mispricing in asset markets i find that the arrival of information during each match leads to substantial mispricing between two equivalent assets and that part of this mispricing can be attributed to differences in the frequency with which the two prices are updated inplay this suggests that information processing constraints force the periodic neglect of one of the assets thereby causing substantial albeit temporary mispricing in this simple asset market

a note on the predictability of finnish stock market returns evidence from stock index futures markets abstract this paper provides further evidence on the predictability of the finnish stock market returns the results show the significant role of index futures returns as an important vehicle in stock market return and volatility prediction

futures trading activity and stock price volatility we examine whether greater futures trading activity volume and open interest is associated with greater equity volatility we partition each trading activity series into expected and unexpected components and document that while equity volatility covaries positively with unexpected futures trading volume it is negatively related to forecastable futures trading activity further though futures trading activity is systematically related to the futures contract life cycle we find no evidence of a relation between the futures life cycle and spot equity volatility these findings are consistent with theories predicting that active futures markets enhance the liquidity and depth of the equity markets

capital account liberalization and dynamic price discovery evidence from chinese cross listed stocks abstractwe analyse the effects of a recent financial reform shanghai hong kong stock connect that enables cross market investment between hong kong and shanghai stock exchanges using a vecm we find that the reform announcement considerably narrows the equilibrium level of price disparity and strengthens the price comovement of shares that are cross listed in both markets the estimated equilibrium relationship is in support of the relative law of one price we find that both markets adjust in response to a disequilibrium in price disparity leading to a sizeable error correction activity the shanghai market contributes to approximately two thirds of the price discovery process competition and informativeness of trading affect the relative role of price discovery in each market finally the reform implementation reinforces the long run cointegration relationship and strengthens the short run price comovements of cross listed stocks despite the widening price disparity during the period

identifying price linkages a review of the literature and an application to the world market of cotton this paper reviews the literature of price linkages and examines the degree to which cotton prices are linked it also tests whether such linkages have improved over the last decade it concludes that the degree of linkage has improved over the last decade while the main source of this improvement appears to be a result of short run price transmission and to a lesser extent long run co movement

stock price clustering on option expiration dates abstract this paper presents striking evidence that option trading changes the prices of underlying stocks in particular we show that on expiration dates the closing prices of stocks with listed options cluster at option strike prices on each expiration date the returns of optionable stocks are altered by an average of at least 16 5 basis points which translates into aggregate market capitalization shifts on the order of 9 billion we provide evidence that hedge rebalancing by option market makers and stock price manipulation by firm proprietary traders contribute to the clustering

pricing options in an extended black scholes economy with illiquidity theory and empirical evidence this article studies the pricing of options in an extended black scholes economy in which the underlying asset is not perfectly liquid the resulting liquidity risk is modeled as a stochastic supply curve with the transaction price being a function of the trade size consistent with the market microstructure literature the supply curve is upward sloping with purchases executed at higher prices and sales at lower prices optimal discrete time hedging strategies are then derived empirical evidence reveals a significant liquidity cost intrinsic to every option copyright 2006 oxford university press

oil price dynamics and speculation a multivariate financial approach abstract this paper assesses empirically whether speculation affects oil price dynamics the growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations strategies of this kind foster feedback trading that may cause considerable departures of prices from their fundamental values we investigate this hypothesis using a modified capm following shiller 1984 and sentana and wadhwani 1992 first a univariate garch 1 1 m is estimated assuming the risk premium to be a function of the conditional oil price volatility the single factor model however is outperformed by the multifactor icapm merton 1973 which takes into account a larger investment opportunity set analysis is then carried out using a trivariate ccc garch m model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior we find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affects both the capm and feedback trading components of the model despite the difficulties we identify a significant role played by speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices a clear evidence that it is not a fundamental driven market thus from a policy point of view given the impact of volatile oil prices on global inflation and growth actions that monitor speculative activities on commodity markets more effectively are to be welcomed

strategic planning of optimal resource allocation in response to global financial crisis a study of international tourist hotels this study is principally designed to examine the changes in the efficiency effective resource allocation and future operation strategies of taiwan s international tourist hotel in global economic downturn at first we set up critical input and output factors and construct an assessment model using data envelopment analysis dea for analysis of relative efficiency further we apply an allocative efficiency model for additional considerations of each input cost and analyse proper and effective resource allocation finally there are significant changes in overall efficiency of international tourist hotels under global financial crisis we can also reach an effective allocation of the overall resources in such cases lowering cost has become a key issue for sustainable operation of international tourist hotel finally the greatest contribution of this study is to further classify the competitiveness and optimal cost allocation of taiwan s international tourist hotels into seven categories based on the

default risk in futures markets the customer broker relationship the traditional view of the futures clearinghouse as an insurer that eliminates the need for customers to evaluate default risk is inaccurate a clearinghouse member default in 1985 confirms that the clearinghouse only guarantees payment from member to member not from customer to customer or member to customer thus non defaulting customers are subject to losses as a result of the action of individuals with whom thay have no contractual obligations this study models the behavior of customers choosing a futures commission merchant fcm given the current legal position of the clearinghouse in a single period model with symmetric information customers can eliminate their exposure to defaults of other customers or of their fcm only by choosing to trade through boutique undiversified fcms in practice monitoring and rebalancing costs may impede the attainment of zero default risk however fcm diversification remains an important factor in customer choice of an fcm when setting capital requirements clearinghouses and government regulators need to consider the implications of diversification for both customer and market protection futures markets provide a well recognized service to the economy by allowing for broader access to the means for reducing risk futures markets are distinguished from forward markets largely by the role played by the clearinghouse and its members the clearinghouse has been viewed by telser and higinbotham 1977 black 1976 edwards 1983 and others as providing an important insurance function each trader need not worry about the risk of default by the other side of the contract because the clearinghouse presumably plays the short for every long and long for every short traders need only be concerned about the ability of the clearinghouse to live up to the terms on the futures contract one feature believed to enhance confidence in the clearinghouse is the requirement that margin be posted at the clearinghouse by each side of the contract see telser 1981 garbade and silber 1983 and brennan 1986 given daily resettlement on futures contracts if one side of the contract defaults the clearinghouse can close the position and use the margin to satisfy the other side of the contract in practice the clearinghouse requires only that the broker or futures commission merchant fcm post the margin and within some constraints leaves the fcm to set requirements with its own customers

futures markets cognitive ability and mispricing in experimental asset markets we study the effect of a futures market in which contracts maturing in the last period of the life of the asset can be traded our experiment has two treatments one in which a spot market operates on its own and a second treatment in which a spot and a futures market are active simultaneously futures markets lower spot prices but increase price volatility the futures markets themselves exhibit considerable overpricing individuals with higher cognitive reflection test crt scores achieve greater earnings and tend to sell in the overpriced futures market while traders with lower crt scores make purchases in the futures market greater average crt score among a group of traders is associated with better price discovery when no futures market is present but there is no such relationship in the presence of a futures market modified measures of crt which take into account different types of incorrect responses are introduced

pinning in the s p 500 futures abstract we show that standard poor s s p 500 futures are pulled toward the at the money strike price on days when serial options on the s p 500 futures expire pinning and are pushed away from the cost of carry adjusted at the money strike price right before the expiration of options on the s p 500 index anti cross pinning these effects are driven by the interplay of market makers rebalancing of delta hedges due to the time decay of those hedges as well as in response to reselling and early exercise of in the money options by individual investors the associated shift in notional futures value is at least 115 million per expiration day

the relationship between crude oil spot and futures prices cointegration linear and nonlinear causality the present study investigates the linear and nonlinear causal linkages between daily spot and futures prices for maturities of one two three and four months of west texas intermediate wti crude oil the data cover two periods october 1991 october 1999 and november 1999 october 2007 with the latter being significantly more turbulent apart from the conventional linear granger test we apply a new nonparametric test for nonlinear causality by diks and panchenko after controlling for cointegration in addition to the traditional pairwise analysis we test for causality while correcting for the effects of the other variables to check if any of the observed causality is strictly nonlinear in nature we also examine the nonlinear causal relationships of vecm filtered residuals finally we investigate the hypothesis of nonlinear non causality after controlling for conditional heteroskedasticity in the data using a garch bekk model whilst the linear causal relationships disappear after vecm cointegration filtering nonlinear causal linkages in some cases persist even after garch filtering in both periods this indicates that spot and futures returns may exhibit asymmetric garch effects and or statistically significant higher order conditional moments moreover the results imply that if nonlinear effects are accounted for neither market leads or lags the other consistently videlicet the pattern of leads and lags changes over time

the effect of the financial sector on the evolution of oil prices analysis of the contribution of the futures market to the price discovery process in the wti spot market abstract the aim of this article is to empirically measure the contribution of the futures market to the price discovery process in the spot market for benchmark crude oils specifically that for west texas intermediate wti for this purpose we test the hypothesis that the recent evolution of the financial markets has affected the future oil market so as to increase its contribution to the price discovery process of the spot market we modeled the relation between wti spot and future prices as a cointegration relation by using the kalman filter technique it was possible to obtain a time varying measure of the contribution of future markets to the price discovery mechanism the results show that in the case of wti the contribution of the futures market has been increasing especially between 2003 and 2008 and then again after the start of 2009 evidencing the growing importance of factors particular to the financial markets in determining oil prices in recent years during 2009 the spot prices adjusted to agents future expectations rather than to the current supply and demand conditions

optimal hedging in the us natural gas market the effect of maturity and cointegration abstract we use the us natural gas market as the rich experimental context to test multiple features of hedging performances first we compare the hedging effectiveness of a single futures contract i e henry hub used for hedging six different physical price positions second we examine the performance of hedging when one uses a futures contract with time to maturity beyond the hedging horizon i e a non matching hedging strategy finally we quantify the effect of accounting for cointegration and also the time varying volatility in the calculation of optimal hedge ratios as a robustness check we conduct our analysis using both ex ante out of sample and ex post in sample methods our findings suggest that using longer maturity contracts may improve the hedging effectiveness we also find that accounting for cointegration and time varying prices has minimal effect on the hedge ratio and hedging effectiveness for almost all physical prices our findings can inform businesses exposed to commodity price risks in on making better risk management decisions

informational frictions and commodity markets this paper develops a model with a tractable log linear equilibrium to analyze the effects of informational frictions in commodity markets by aggregating dispersed information about the strength of the global economy among goods producers whose production has complementarity commodity prices serve as price signals to guide producers production decisions and commodity demand our model highlights important feedback effects of informational noise originating from supply shocks and futures market trading on commodity demand and spot prices our analysis illustrates the weakness common in empirical studies on commodity markets of assuming that different types of shocks are publicly observable to market participants