scholarly journals Trading Activities and the Volatility of Return on Malaysian Crude Palm Oil Futures

2022 ◽  
Vol 15 (1) ◽  
pp. 34
Author(s):  
Xiu Wei Yeap ◽  
Hooi Hooi Lean
Keyword(s):  
Palm Oil ◽  
Trading Volume ◽  
Positive Relationship ◽  
Information Flows ◽  
Crude Palm Oil ◽  
Open Interest ◽  
Oil Futures ◽  
Independent Variables ◽  
Trading Activities ◽  
The Garch Model

Trading activities represent the flow of market information to the investors. This paper examines the effect of trading activities, i.e., trading volume and open interest, on the volatility of return for Malaysian Crude Palm Oil Futures. The GARCH model is applied by adding the expected and unexpected elements of trading activities (trading volume and open interest) as the independent variables. The results show that there is a negative contemporaneous relationship between the expected volume and volatility, but that a positive relationship exists between unexpected volume and volatility. On the contrary, the expected and unexpected open interest mitigate the volatility. Therefore, both trading volume and open interest should be considered together when information flows into the market.

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

EFFECTIVE CROSS HEDGING: EVIDENCE FROM PHYSICAL CRUDE PALM OIL AND ITS INTER-RELATED AGRICULTURAL FUTURES CONTRACTS

2018 ◽  
Vol 17 (2) ◽  
pp. 123
Author(s):  
Noryati Ahmad ◽  
Ahmad Danial Zainudin ◽  
Fahmi Abdul Rahim ◽  
Catherine S F Ho
Keyword(s):  
Palm Oil ◽  
Futures Contracts ◽  
Crude Palm Oil ◽  
Oil Futures ◽  
Futures Contract ◽  
Agricultural Futures ◽  
Cross Hedging ◽  
Optimal Hedge ◽  
Excessive Speculation ◽  
Chicago Board Of Trade

Since its establishment, Crude Palm Oil futures contract (FCPO) has been used to directly hedge its physical crude palm oil (CPO). However, due to the excessive speculation activities on crude palm oil futures market, it has been said to be no longer an effective hedging tool to mitigate the price risk of its underlying physical market. This triggers the need for market players to find possible alternatives to ensure that the hedging role can be executed effectively. Thus this investigation attempts to examine whether other inter-related grains and oil seed futures contracts could serve as effective cross-hedging mechanisms for the CPO. Weekly data of inter-related futures contracts from Chicago Board of Trade (CBOT) and Dalian Commodity Exchange (DCE) are employed to cross hedge the physical crude palm oil prices. The study starts from 2006 until 2016. Empirical results indicate that FCPO is still the best futures contract for hedging purposes while Chicago Soybean (CBOTBO) provides second best alternative if cross-hedging is considered. Keywords: Crude palm oil, Crude palm oil futures, Cross Hedging, Optimal Hedge Ratio, Effective Hedging

scholarly journals Open outcry versus electronic trading: Tests of market efficiency on crude palm oil futures

2018 ◽  
Vol 38 (6) ◽  
pp. 673-695 ◽  
Author(s):  
Stuart Snaith ◽  
Neil M. Kellard ◽  
Norzalina Ahmad
Keyword(s):  
Market Efficiency ◽  
Palm Oil ◽  
Electronic Trading ◽  
Crude Palm Oil ◽  
Oil Futures ◽  
Open Outcry

Crude Palm Oil Futures

2014 ◽  
pp. 381-390
Author(s):  
Jawwad Ahmed Farid
Keyword(s):  
Palm Oil ◽  
Crude Palm Oil ◽  
Oil Futures

scholarly journals Modelling Commodity Futures Prices: The Case of Crude Palm Oil Futures

2019 ◽  
Vol 24 (Supp.1) ◽  
pp. 61-78
Author(s):  
Khalil Ahmed ◽  
◽  
Zurina Shafii ◽  
Amir Shaharuddin ◽  
Nur Azira Mohd ◽  
...  
Keyword(s):  
Palm Oil ◽  
Commodity Futures ◽  
Futures Prices ◽  
Crude Palm Oil ◽  
Oil Futures

Trading volume and return relationship in the crude oil futures markets

2014 ◽  
Vol 31 (4) ◽  
pp. 426-438 ◽  
Author(s):  
Saada Abba Abdullahi ◽  
Reza Kouhy ◽  
Zahid Muhammad
Keyword(s):  
Crude Oil ◽  
Information Flow ◽  
Trading Volume ◽  
Futures Markets ◽  
Positive Relationship ◽  
Generalized Method Of Moments ◽  
Oil Futures ◽  
Content Type ◽  
Oil Markets ◽  
Crude Oil Futures

Purpose – The purpose of this paper is to examine the relationship between trading volume and returns in the West Texas Intermediate (WTI) and Brent crude oil futures markets. In so doing, the paper addresses two important issues. First, whether there is a positive relationship between returns and trading volume in the crude oil futures markets. Second, whether information regarding trading volume contributes to forecasting the magnitude of return in the markets, an important issue because the ability of trading volume to predict returns imply market inefficiency. Design/methodology/approach – The paper used daily closing futures price and their corresponding trading volumes for WTI and Brent crude oil markets during the sample period January 2008 to May 2011. Both the log volume and the unexpected component of the detrended volume are used in the analysis in other to have robust alternative conclusion. The generalized method of moments (GMM) approach is used to examine the contemporaneous relationship between returns and trading volume while the Granger causality approach, impulse response and variance decomposition analysis are used to investigate the ability of trading volume to predict returns in the oil futures markets. Findings – The results reject the postulation of a positive relationship between trading volume and returns, suggesting that trading volume and returns are not driven by the same information flow which contradicts the mixture of distribution hypothesis in all markets. The results also show that neither trading volume nor returns have the power to predict the other and therefore contradicting the sequential arrival hypothesis and noise trader model in all markets. Finally, the findings support the weak form efficient market hypothesis in the crude oil futures markets. Originality/value – The findings has important implications to market regulators because daily price movement and trading volume do not respond to the same information flow and therefore the measures that control price volatility should not focused more on volume; otherwise they may not provide fruitful outcomes. Additionally, traders and investors who participate in oil futures should not base their decisions on past trading volume because it will lead to profit loss. The results also have implications for market efficiency as past information cannot assist speculators to forecast returns in all the oil markets. Finally, investors can benefit from portfolio diversification across the two markets.

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