Causality Between Market Liquidity and Depth for Energy and Grains

43 Pages Posted: 18 May 2011

See all articles by Ramazan Sari

Ramazan Sari

Middle East Technical University (METU)

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Chia-Lin Chang

National Chung Hsing University - Department of Applied Economics, Department of Finance

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Date Written: April 20, 2011

Abstract

This paper examines the roles of futures prices of crude oil, gasoline, ethanol, corn, soybeans and sugar in the energy-grain nexus. It also investigates the own- and cross-market impacts for lagged grain trading volume and open interest in the energy and grain markets. According to the results, the conventional view, for which the impacts are from oil to gasoline to ethanol to grains in the energy-grain nexus, does not hold well in the long run because the oil price is influenced by gasoline, soybeans and oil. Moreover, gasoline is preceded by only the oil price and ethanol is not foreshadowed by any of the prices. However, in the short run, two-way feedback in both directions exists in all markets. The grain trading volume effect across oil and gasoline is more pronounced in the short run than the long run, satisfying both the overconfidence/disposition and new information hypotheses across markets. The results for the ethanol open interest shows that money flows out of this market in both the short and long run, but no results suggest across market inflows or outflows to the other grain markets.

Keywords: Causality, market liquidity, depth, energy, grains

JEL Classification: Q11, Q18, Q42

Suggested Citation

Sari, Ramazan and Hammoudeh, Shawkat M. and Chang, Chia-Lin and McAleer, Michael, Causality Between Market Liquidity and Depth for Energy and Grains (April 20, 2011). Available at SSRN: https://ssrn.com/abstract=1817022 or http://dx.doi.org/10.2139/ssrn.1817022

Ramazan Sari

Middle East Technical University (METU)

Ankara, 06531
Turkey

Shawkat M. Hammoudeh

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

Chia-Lin Chang (Contact Author)

National Chung Hsing University - Department of Applied Economics, Department of Finance ( email )

Taichung, Taiwan
China

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

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