Is the Supply Curve for Commodity Futures Contracts Upward Sloping?

58 Pages Posted: 16 Apr 2019

See all articles by Lei Yan

Lei Yan

Yale University

Scott H. Irwin

University of Illinois at Urbana-Champaign

Dwight R. Sanders

Southern Illinois University - Agribusiness Economics

Date Written: February 7, 2019

Abstract

Annual rebalancing of the S&P GSCI index provides a novel and strong identification to estimate the shape of supply curves for commodity futures contracts. Using the 24 commodities included in the S&P GSCI for 2004–2017, we show that cumulative abnormal returns (CARs) reach a peak of 59 basis points in the middle of the week following the rebalancing period, but the impact is temporary as it declines to near zero within the next week. The findings provide clear evidence that the supply curve for commodity futures contracts is upward sloping in the short-run but almost flat in the longer-run.

Keywords: commodity futures, index, limits to arbitrage, order flow, rebalancing

JEL Classification: G13, G14, G23

Suggested Citation

Yan, Lei and Irwin, Scott and Sanders, Dwight R., Is the Supply Curve for Commodity Futures Contracts Upward Sloping? (February 7, 2019). Available at SSRN: https://ssrn.com/abstract=3360787 or http://dx.doi.org/10.2139/ssrn.3360787

Lei Yan (Contact Author)

Yale University

New Haven, CT 06511
United States

Scott Irwin

University of Illinois at Urbana-Champaign ( email )

344 Mumford Hall
1301 W. Gregory Dr.
Urbana, IL 61801
United States
217-333-6087 (Phone)

HOME PAGE: http://https://scotthirwin.com/

Dwight R. Sanders

Southern Illinois University - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

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