Asset Storability and Price Discovery of Commodity Futures Markets: A New Look

32 Pages Posted: 21 Nov 2002

See all articles by Jian Yang

Jian Yang

University of Colorado at Denver - Business School

David Bessler

Texas A&M University, College Station - Department of Agricultural Economics

David J. Leatham

Texas A&M University - Department of Agricultural Economics

Abstract

This paper examines the price discovery performance of futures markets for storable and nonstorable commodities in the long run, allowing for the compounding factor of stochastic interest rates. The evidence shows that asset storability does not affect the existence of cointegration between cash and futures prices and the usefulness of future markets in predicting future cash prices. However, it may affect the magnitude of bias of futures markets' estimates (or predictions) for future cash prices. These findings have several important implications for commodity production decision-making, commodity hedging and commodity price forecasting.

Keywords: Asset storability, Price discovery, Cointegration, Cost-of-carry

JEL Classification: G13, C32

Suggested Citation

Yang, Jian and Bessler, David and Leatham, David J., Asset Storability and Price Discovery of Commodity Futures Markets: A New Look. Available at SSRN: https://ssrn.com/abstract=322682 or http://dx.doi.org/10.2139/ssrn.322682

Jian Yang (Contact Author)

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

David Bessler

Texas A&M University, College Station - Department of Agricultural Economics ( email )

College Station, TX 77840
United States
979-845-3096 (Phone)

David J. Leatham

Texas A&M University - Department of Agricultural Economics ( email )

College Station, TX 77843-4218
United States
979-845-5806 (Phone)
979-862-1563 (Fax)

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