We show that a positive spread exists in an order driven market even in the absence of intermediaries. We further show that the bid and ask prices are functions of the differences in valuation among investors and adverse selection. Our analysis yields insights into the determinants of the bid and ask prices and of the spread in the absence of intermediaries. Moreover, rescaled range analysis, Hurst exponent analysis and Mandelbrot's test on the existence of a link between the characteristic exponent of a stable distribution and the Hurst exponent, all provide empirical confirmation that the processes generating agricultural futures returns are fractal. Simulations are then employed to assess the effects of the above extensions on the time series properties of commodity prices.
Results account for the persistence and occasional spikes observed in actual data.
Evidence is presented that the precautionary demand for stocks might play a substantial role in the dynamics of commodity prices. WoPEc is a service for finding and downloading the latest research results in economics. It contains over 50,000 documents in electronic format. WoPEc is a service for finding and downloading the latest research results in economics. It has a decentralized database of working papers, journal articles and software components, over 51,000 of which are available online.