STRATEGIC INTERACTIONS AND NEGATIVE OIL PRICES

2021 ◽  
Author(s):  
CHENGHU MA ◽  
XIANZHEN WANG
Keyword(s):  
Solution Concept ◽  
Oil Prices ◽  
Side Payment ◽  
Strategic Interactions ◽  
Futures Trading ◽  
Transfer Payments ◽  
Futures Contract ◽  
Strong Nash Equilibrium ◽  
Price Manipulation ◽  
Player Game

This paper argues on theoretical grounds that the negative oil prices event on April 20, 2020, was mainly due to the strategic interactions among some active traders on both sides of the futures contract. We present a three-player game of futures trading in which a continuum range of negative price can be supported as (strong) Nash equilibrium, yet none of those constitutes an [Formula: see text]-equilibrium originally developed by Ma (2009). We further propose the notion of coalition-with-side-payment as a solution concept for the environment where strategic interactions and transfer payments among players are allowed. Our model captures the mechanism underlying futures price manipulation, and its predictions largely agree with the observations on that day, which are beyond the scope of demand–supply and physical delivery narratives.

Return Autocorrelations on Individual Stocks and Corresponding Futures: Evidence from Australian, Hong Kong, and United Kingdom Markets

2004 ◽  
Vol 07 (03) ◽  
pp. 397-422 ◽  
Author(s):  
Donald Lien ◽  
Li Yang
Keyword(s):  
Hong Kong ◽  
United Kingdom ◽  
Stock Returns ◽  
Trading Volume ◽  
Futures Contracts ◽  
Futures Trading ◽  
Stock Trading ◽  
Futures Contract ◽  
Trading Activities ◽  
The Difference

In this study, we investigate the daily relationships between returns on individual stocks and their corresponding futures contracts in Australian, Hong Kong, and United Kingdom markets. We find that, at the beginning of the life of a futures market, autocorrelation of futures returns is similar to that of individual stock returns. As the market becomes mature, the autocorrelation of futures returns behaves differently from the autocorrelation of stock returns. Through the linkage between return autocorrelations and trading volume, we find that a larger trading volume depresses the return autocorrelation and shrinks the differences of return autocorrelation between stock and its futures. In addition, futures trading volume has more significant impact on the patterns of return autocorrelations than the stock trading volume. The effect is non-linear in the sense that it is much more prominent during high futures trading periods. Summary of these findings suggests that the difference of return autocorrelations between an individual stock and its futures contract is due to low trading activities of futures.

scholarly journals Estimating the Volatility of Cocoa Price Return with ARCH and GARCH Models

2013 ◽  
Vol 29 (2) ◽  
Author(s):  
Lya Aklimawati ◽  
Teguh Wahyudi
Keyword(s):  
Research Result ◽  
Price Volatility ◽  
Type Model ◽  
P Value ◽  
Market Uncertainty ◽  
Futures Trading ◽  
Price Movement ◽  
Futures Contract ◽  
Normality Test ◽  
Lm Test

Dynamics of market changing as a result of market liberalization have an impact on agricultural commodities price fluctuation. High volatility on cocoa price movement reflect its price and market risk. Because of price and market uncertainty, the market players face some difficulties to make a decision in determining business development. This research was conducted to 1) understand the characteristics of cocoa price movement in cocoa futures trading, and 2)analyze cocoa price volatility using ARCH and GARCH type model. Research was carried out by direct observation on the pattern of cocoa price movement in the futures trading and volatility analysis based on secondary data. The data was derived from Intercontinental Exchange ( ICE) Futures U.S. Reports. The analysis result showed that GARCH is the best model to predict the value of average cocoa price return volatility, because it meets criteria of three diagnostic checking, which are ARCH-LM test, residual autocorrelation test and residual normality test. Based on the ARCH-LM test, GARCH (1,1)did not have heteroscedasticity, because p-value  2 (0.640139)and F-statistic (0.640449) were greater than 0.05. Results of residual autocorrelation test indicated that residual value of GARCH (1,1) was random, because the statistic value of Ljung-Box (LB)on the 36 th lag is smaller than the statistic value of  2. Whereas, residual normality test concluded the residual of GARCH (1,1) were normally distributed, because AR (29), MA (29), RESID (-1)^2, and GARCH (-1) were significant at 5% significance level. Increasing volatility value indicate high potential risk. Price risk can be reduced by managing financial instrument in futures trading such as forward and futures contract, and hedging. The research result also give an insight to the market player for decision making and determining time of hedging. Key words: Volatility, price, cocoa, GARCH, risk, futures trading

Selectivity, Information And The Return To Futures Trading

2011 ◽  
Vol 6 (4) ◽  
pp. 59
Author(s):  
John L. Trimble ◽  
M. Wayne Marr
Keyword(s):  
Statistical Tests ◽  
Probability Model ◽  
Trading Strategy ◽  
Weight Of Evidence ◽  
Controversial Issues ◽  
Futures Trading ◽  
Expected Return ◽  
Futures Contract ◽  
Gold Futures ◽  
The Impact

One of the more controversial issues in modern financial economics and in futures trading in particular is whether traders have the ability to earn returns above what they could with a buy-and-hold strategy. The weight of evidence in support of Martingale price movements generally has been considered to be evidence that the expected value of trading returns is zero. This paper shows, however, that, when the contingent claims in a futures contract are taken into account in defining return, expected trading returns may not be zero, even if prices follow the Martingale pattern. We also point out that, if a sample of trades is representative of some trading strategy with its corresponding trading information, the impact of that strategy on a traders expected return can be represented by a probability model of the strategys success. This results because, to be successful, a trading strategy must select trades nonrandomly. Using these results, the paper specifies a model of the expected return of an arbitrary trading strategy. As an illustration, the model is estimated for an artificially constructed strategy in gold futures that imitates what the industry claims is the epitome of futures trading performance many small losses more than offset by a few big gains. Statistical tests based on the estimation of this model support the characterization of returns being due to the trading strategy using information to nonrandomly select trades.

scholarly journals Does Trading Volume explain the Information Flow of Crude Palm Oil Futures Returns?

2020 ◽  
Vol 12 (2) ◽  
pp. 115-136
Author(s):  
You-How Go ◽  
◽  
Wee-Yeap Lau ◽  
Keyword(s):  
Palm Oil ◽  
Trading Volume ◽  
Futures Market ◽  
Sensitive Information ◽  
Crude Palm Oil ◽  
Futures Trading ◽  
Oil Futures ◽  
Futures Contract ◽  
Information Set

This study examines the role of trading volume in the crude palm oil (CPO)futures market as a proxy for information áow from the perspective of the mixture-of-distributions hypothesis (MDH). Using the data from January 2000 to April 2017, a sym-metric GARCH model has been estimated, in which the residuals follow alternatively thenormal Student-t and generalised error distribution. An alternative augmented model thatconsists of trading volume as an exogenous variable is estimated with the same error dis-tributions. Our results suggest several conclusions: First, the trading volume could not actas a true proxy for information áow. This indicates that volume of futures trading containsrelatively less price-sensitive information. Secondly, the inclusion of trading volume into theconditional variance equation with Student-t distributed errors is important for modellingpurposes when the returns are leptokurtic and positively skewed. Hence, it can be concludedthat the use of return and trading volume will enhance the current information set usedby practitioners and analysts in pricing the CPO futures contract when there exists a highdegree of leptokurtosis in the returns. This is the Örst study that validates the MDH in thecontext of the CPO futures market

scholarly journals Case studies on the success or failure of futures contracts

2015 ◽  
Vol 4 (3) ◽  
pp. 30-47 ◽  
Author(s):  
Hilary Till
Keyword(s):  
Public Policy ◽  
Case Studies ◽  
Futures Markets ◽  
Futures Contracts ◽  
Trial And Error ◽  
Futures Trading ◽  
Futures Contract ◽  
The U.S

Why do some futures contracts succeed and others fail? Although the U.S. futures markets have evolved in a trial-and-error fashion, research suggests key elements have determined whether particular futures contracts succeeded or failed. This knowledge could be useful for new financial centers as they build successful futures markets. This paper shows that there are three elements that determine whether a futures contract succeeds or not: 1. There must be a commercial need for hedging; 2. A pool of speculators must be attracted to a market; and 3. Public policy should not be too adverse to futures trading

scholarly journals Strong and Safe Nash Equilibrium in Some Repeated 3-Player Games

2019 ◽  
Vol 65 (3) ◽  
pp. 271-295 ◽  
Author(s):  
Tadeusz Kufel ◽  
Sławomir Plaskacz ◽  
Joanna Zwierzchowska
Keyword(s):  
Nash Equilibrium ◽  
Normal Form ◽  
Prisoner's Dilemma ◽  
Prisoner’S Dilemma ◽  
Repeated Game ◽  
Equilibrium Payoff ◽  
Equilibrium Strategies ◽  
Strong Nash Equilibrium ◽  
Player Game ◽  
Stage Game

The paper examines an infinitely repeated 3-player extension of the Prisoner’s Dilemma game. We consider a 3-player game in the normal form with incomplete information, in which each player has two actions. We assume that the game is symmetric and repeated infinitely many times. At each stage, players make their choices knowing only the average payoffs from previous stages of all the players. A strategy of a player in the repeated game is a function defined on the convex hull of the set of payoffs. Our aim is to construct a strong Nash equilibrium in the repeated game, i.e. a strategy profile being resistant to deviations by coalitions. Constructed equilibrium strategies are safe, i.e. the non-deviating player payoff is not smaller than the equilibrium payoff in the stage game, and deviating players’ payoffs do not exceed the nondeviating player payoff more than by a positive constant which can be arbitrary small and chosen by the non-deviating player. Our construction is inspired by Smale’s good strategies described in Smale’s paper (1980), where the repeated Prisoner’s Dilemma was considered. In proofs we use arguments based on approachability and strong approachability type results.

Swap futurization

2014 ◽  
Vol 22 (2) ◽  
pp. 147-158 ◽  
Author(s):  
Lisa Smack
Keyword(s):  
Futures Markets ◽  
Block Size ◽  
Futures Trading ◽  
Regulatory Arbitrage ◽  
Content Type ◽  
Margin Requirements ◽  
Futures Contract ◽  
Management Objectives ◽  
Commodity Futures Trading Commission ◽  
Background Detail

Purpose – The purpose of this paper is to demonstrate that certain rules, implemented as a result of the Dodd-Frank Act (DFA) of 2010, should be harmonized between economically equivalent products in swap and futures markets to prevent regulatory arbitrage. Design/methodology/approach – The paper focuses on rules surrounding margin requirements and block size thresholds. As such, a background of clearing and exchange systems is presented to familiarize the reader with the risk management objectives of the regulation. Viewpoints of several leading commentators taken from a Commodity Futures Trading Commission roundtable and comment letters are then analysed to support the argument that margin requirements and block size thresholds should be the same for similar financial products. Findings – Based on the review and analysis of several commentators and industry participants, harmonization of rules for swaps and economically equivalent futures contract should be achieved to prevent regulatory arbitrage. Originality/value – To the best of the author's knowledge, there are no articles that address the swap futurization debate in this detail. This paper will be of interest to readers who would like to learn more about how the DFA has impacted the derivatives market leading to the recent trend of swap “futurization”. It is also ideal for those who are unfamiliar with current clearing and exchange systems, as it presents background detail of this framework to supplement the debate on swap rules.

What Does Rent Give to Federal Budget (on the Russia's Budget Dependence upon "Oil Dollars")

2004 ◽  
pp. 51-69 ◽  
Author(s):  
E. Sharipova ◽  
I. Tcherkashin
Keyword(s):  
Oil And Gas ◽  
Strong Dependence ◽  
Oil Prices ◽  
Federal Budget ◽  
Oil And Gas Industry ◽  
Gas Industry ◽  
Resource Rent ◽  
Tax Legislation ◽  
Russian Economy ◽  
The Government

Federal tax revenues from the main sectors of the Russian economy after the 1998 crisis are examined in the article. Authors present the structure of revenues from these sectors by main taxes for 1999-2003 and prospects for 2004. Emphasis is given to an increasing dependence of budget on revenues from oil and gas industries. The share of proceeds from these sectors has reached 1/3 of total federal revenues. To explain this fact world oil prices dynamics and changes in tax legislation in Russia are considered. Empirical results show strong dependence of budget revenues on oil prices. The analysis of changes in tax legislation in oil and gas industry shows that the government has managed to redistribute resource rent in favor of the state.

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