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An analysis of time-varying commodity market price discovery

journal contribution
posted on 01.05.2018, 00:00 authored by Paresh Narayan, Susan SharmaSusan Sharma
© 2018 Elsevier Inc. We propose a model of time-varying price discovery based on a rolling-window error correction framework. We show that price discovery in nine commodities is dominated by the spot market, while, in only six commodities, price discovery is dominated by the futures market. Our findings, therefore, challenge the well-established view in commodity markets that it is the futures market which dominates the price discovery process. We also show the economic significance of price discovery through a portfolio construction and hedging strategy.

History

Journal

International review of financial analysis

Volume

57

Pagination

122 - 133

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

1057-5219

Language

eng

Publication classification

C Journal article; C1 Refereed article in a scholarly journal

Copyright notice

2018, Elsevier