scholarly journals The Impact of Futures Price Volatility to Spot Market : Case of Coffee in Indonesia

2019 ◽  
Vol 15 (1) ◽  
pp. 1-15 ◽  
Author(s):  
Anis Erma Wulandari ◽  
Harianto Harianto ◽  
Bustanul Arifin ◽  
Heny K Suwarsinah
Keyword(s):  
Exchange Rate ◽  
Price Volatility ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Price Risk ◽  
Price Inflation ◽  
Spot Prices ◽  
Futures Price ◽  
The Impact

Indonesia is the world 4th largest coffee producer after Brazil, Vietnam and Colombia with export potential and higher national consumption concluded in 2017 while the coffee production was relatively stagnant. This was led the producer to not only the production risk but also the price risk which then emphasize the importance of futures markets existence as price risk management. This study is performed to examine the impact of futures price volatility to spot market using ARCH-GARCH toward primary data of coffee futures and spot prices of 1172 trading days starting from January 2014 to June 2018. The ARCH-GARCH analysis result indicates that futures price volatility and monetary variables are impacting the volatility of spot price. Arabica spot price volatility is impacted by volatility of Arabica futures price, inflation and exchange rate while Robusta spot price is impacted by Robusta futures price volatility and exchange rate. This is confirming that futures market plays dominant role in spot price discovery. Local futures and spot prices are also found to be significantly influenced by volatility of offshore futures prices which indicates that emerging country futures market is actually influenced by offshore futures market which the price itself used as price reference.

scholarly journals Is Futurization the Culprit for the Violent Fluctuation in China’s Apple Spot Price?

Agriculture ◽  
2021 ◽  
Vol 11 (4) ◽  
pp. 342
Author(s):  
Lin Xie ◽  
Jiahua Liao ◽  
Haiting Chen ◽  
Xuefei Yan ◽  
Xinyan Hu
Keyword(s):  
Price Volatility ◽  
Futures Market ◽  
Agricultural Products ◽  
Spot Price ◽  
Agricultural Product ◽  
Interrupted Time Series Analysis ◽  
Product Price ◽  
Price Fluctuation ◽  
Spot Prices ◽  
The Impact

China aims to utilize the futures market to stabilize agricultural product price fluctuation by quantifying the effects of risk transfer and price discovery. However, the role of futurization has been questioned and even posited as the cause of drastic fluctuations in spot market prices. This research aims to clarify the impact of futurization on the price fluctuation of agricultural products and to provide policy reference for the development of the agricultural futures market through the research. Here, we examine the spot price data for apples and use Interrupted time-series analysis (ITSA) and GARCH models to estimate the impact of apple futures on the volatility of spot prices. Our findings demonstrate that the launch of China’s apple futures did not increase the volatility of apple spot prices; that is, futurization was not the cause of skyrocketing apple spot prices. In the long term, our results suggest that futures will help reduce the volatility of apple spot prices and that the introduction of futures will ultimately reduce the price volatility of agricultural products.

scholarly journals Volatility Dynamics in Oil and Oilseeds Spot and Futures Market in India

2016 ◽  
Vol 41 (2) ◽  
pp. 132-148 ◽  
Author(s):  
Meenakshi Malhotra ◽  
Dinesh Kumar Sharma
Keyword(s):  
Futures Markets ◽  
Garch Model ◽  
Price Volatility ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Volatility Spillover ◽  
Trading Activity ◽  
Futures Trading ◽  
The Impact

Executive Summary India occupies the fifth position in the vegetable oil economy of the world. The demand for oilseeds and vegetable oil has far exceeded the domestic output necessitating huge imports. Futures market helps to bring price stability for the development of the underlying physical market. The present study investigates the volatility dynamics in spot and futures markets of select oil and oilseeds commodities. The objectives of this article are to study (a) the information transmission process between spot and futures markets, also called volatility spillover and (b) the impact of futures trading activity on the volatility of physical market prices. The commodities selected from oil and oilseeds segment are refined soya oil, mustard seed, crude palm oil, and mentha oil. The study uses basic Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model to capture volatility in prices of the selected commodities. Bivariate GARCH model makes use of information in the history of two different markets for testing volatility spillover between two markets of the same underlying commodity. The relationship between futures trading activity and spot price volatility is investigated for examining the impact of futures trading activity on the volatility of underlying spot market. Two variables, viz., futures trading volume and open interest are decomposed into expected and unexpected components and are taken as a proxy for the level of trading activity. The contemporaneous and dynamic relationships are studied with the help of augmented GARCH model and Granger causality, respectively. It is observed that there is an efficient transmission of information between spot and futures markets but it is the spot market which leads to the flow of information to futures and hence causes greater spillover of volatility. The spot market has a greater impact on the volatility of futures market, indicating that informational efficiency of oilseeds spot market is stronger than that of the futures market. The contemporaneous and dynamic relationship between spot price volatility and futures trading activity tested with econometric models provide evidence of the destabilizing impact of an unexpected increase in futures trading activity (volume or open interest) on the spot price volatility in three out of four commodities studied. This indicates that badly informed traders present in futures market are destabilizing the underlying spot market by inducing noise and lowering the information content of prices.

The Unbiasedness and Hedging Effectiveness in KOSPI200 Futures Market

2007 ◽  
Vol 15 (1) ◽  
pp. 73-100
Author(s):  
Seok Kyu Kang
Keyword(s):  
Risk Management ◽  
Risk Premium ◽  
Futures Market ◽  
Spot Price ◽  
Sample Period ◽  
Futures Prices ◽  
Spot Prices ◽  
Hedging Effectiveness ◽  
Futures Price ◽  
Rolling Windows

This study is to examine the unblasedness hypothesis and hedging effectiveness in KOSPI20() futures market. The unbiasedness and efficiency hypothesis is carried out using a cointegration methodology. And hedging effectiveness is measured by comparing hedging performance of the naive hedge model, OLS hedge model. and constant correlation bivariate GARCH (1. 1) hedge model based on rolling windows. The sample period covers from May. 3. 1996 to December. 8, 2005. The empirical results are summarized as follows: First, there exists the cOintegrating relationship between realized spot prices and futures prices of the 10 day. 22 day. 44 day. and 59 day prior to maturity. Second. futures prices of backward the 10 day. 22 day. 44 day from maturity provide unbiased forecasts of the realized spot prices. The KOSPI200 futures price is likely to predict accurately future KOSPI200 spot prices without the trader having to pay a risk premium for the privilege of trading the contract. Third. for shorter maturity. the futures price appears to be the best forecaster of spot price. Forth, bivariate GARCH hedging effectiveness outperforms the naive and OLS hedging effectiveness. The implications of these findings show that KOSPI200 futures market behaves as unbiased predictor of future spot price and risk management instrument of KOSPI200 spot portfolio.

scholarly journals Role of the Futures Market on Volatility and Price Discovery of the Spot Market: Evidence from Pakistan’s Stock Market

2006 ◽  
Vol 11 (2) ◽  
pp. 107-121 ◽  
Author(s):  
Safi Ullah Khan
Keyword(s):  
Stock Market ◽  
Alternative Hypothesis ◽  
Relevant Information ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Vector Error Correction ◽  
Spot Prices ◽  
New Information

This paper focuses on the role of the financial futures market in the volatility of Pakistan’s stock market and determines whether the stock futures price is capable of providing some relevant information for predicting the spot price. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) approach is used to measure volatility in the spot and the futures market and to analyze the relationships between spot and futures market volatility. Causality and feedback relationships between the two markets are analyzed and determined through the Vector Error Correction Model (VECM). Empirical results support the evidence that spot prices generally lead the futures prices in incorporating new information, and that volatility in the futures market does not increase volatility in the spot market. Rather the study finds more consistent support for the alternative hypothesis that volatility in the futures market may be an outgrowth of the volatile spot market.

Strategic procurement from forward contract and spot market

2014 ◽  
Vol 114 (5) ◽  
pp. 778-796 ◽  
Author(s):  
C.K.M. Lee ◽  
Danping Lin ◽  
Rohan Pasari
Keyword(s):  
Demand Uncertainty ◽  
Price Volatility ◽  
Real Data ◽  
Spot Market ◽  
Spot Price ◽  
Content Type ◽  
Procurement Process ◽  
The Impact ◽  
Forward Contracting

Purpose – The purpose of this paper is to formulate procurement strategies and determine the optimal procurement quantity in order to maximize profit through forward contracting and the spot market. Design/methodology/approach – The procurement process is modeled at various stages along a time horizon from the perspective of the buyer, with consideration of uncertain yields, stochastic demand and dynamic spot market prices. Monte Carlo simulation based experiments were conducted to figure out the best procurement quantity for five different scenarios. The framework was developed to understand the impact of different uncertain variables on a firm's profit. A case study was carried out in a steel making company in India, with real data. Findings – The results indicate that the proposed approach enables buyers to achieve higher profits under volatile demand conditions. In the case study, it was found that the profit is higher for the spot market than for contract pricing if there is significant demand and spot price volatility. Originality/value – This research considers not only demand uncertainty but also supply uncertainty in the procurement process, and profit analysis was carried out to enable an enterprise to set up a procurement plan by using forward contracting and the spot market. This study should also increase awareness in both academia and industry on the opportunities of using the spot market to enhance flexibility and to mitigate risk in the procurement process.

scholarly journals EXPLORING THE INFLATIONARY EFFECT OF OIL PRICE VOLATILITY IN AFRICA’S OIL EXPORTING COUNTRIES

2020 ◽  
pp. 113
Author(s):  
Sina Jimoh Ogede ◽  
Emmanuel Oladapo George ◽  
Ibrahim Ayoade Adekunle
Keyword(s):  
Price Volatility ◽  
Estimation Procedure ◽  
Oil Price ◽  
Price Inflation ◽  
Substantial Impact ◽  
Oil Price Volatility ◽  
Relationship Outcomes ◽  
Precautionary Measures ◽  
Level Of Significance ◽  
The Impact

A range of explanations had been offered for the apparent change in oil price-inflation relationship outcomes ranging from the possible use of alternate energy sources, change in the structure of output regarding fewer oil intensive sectors and the role of fiscal and monetary in the affected oil-exporting countries. These changes had drawn the attention of stakeholders, government and the society at large to the anecdotal relationship among oil price volatility, inflation, and output in Africa oil-exporting countries. This study leans empirical credence to the impact of oil price volatility on inflation and economic performance in the Africa oil-exporting countries from 1995 through 2017. We employed the Pool Mean Group estimation procedure with the inference drawn at a 5% level of significance. We found that oil price volatility had a negative and significant effect on inflation in Africa oil-exporting countries. The study concluded that oil price volatility had a substantial impact on inflation in the Africa oil-exporting countries. The study, therefore, recommended that Africa oil-exporting countries should adopt precautionary measures to monitor inflation potentials due to different responses of inflation to positive and negative oil price shocks.

scholarly journals HOW EFFECTIVE IS FUTURES AS AN INSTRUMENT OF HEDGING AGAINST PRICE RISK? -A STUDY BASED ON SPOT AND FUTURE PRICES OF GOLD

2016 ◽  
Vol 4 (9) ◽  
pp. 143-150
Author(s):  
Shafeeque Muhammad ◽  
Thomachan
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Price Risk ◽  
Time Varying ◽  
Risk Hedging ◽  
Hedging Effectiveness ◽  
Cash Market ◽  
Hedge Ratios ◽  
Opposite Position

This paper examines the role of commodity futures market as an instrument of hedging against price risk. Hedging is the practice of offsetting the price risk in a cash market by taking an opposite position in the futures market. By taking a position in the futures market, which is opposite to the position held in the spot market, the producer can offset the losses in the latter with the gains in the former. Both static and time varying hedge ratios have been calculated using VECM-MGARCH model. Variance of return from hedge portfolio has been found to be low. Further hedging effectiveness has been observed to be around 12%.

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