This paper investigates the uncertainty-dependent and sign-dependent effects of the oil market fundamental shocks, namely supply, aggregate demand and oil-specific demand shocks. We do so by first proposing a novel oil uncertainty index that is measured by the stochastic volatility of the unpredictable component of oil prices. We then employ a nonlinear model and find that the all reactions of oil

This paper explores the effectiveness of Whole Milk Powder futures to protect the net profit margins of New Zealand dairy farms. The proposed strategy for farms suggests selling futures contracts when the current futures price (adjusted for basis risk and commissions) is above the break-even price. We use historical data from 2011 to 2017 and simulate a profit margin hedging strategy with a target

Annual rebalancing of the S&P Goldman Sachs Commodity Index (S&P GSCI) provides a novel identification of the impact of predictable order flows from index investors in commodity futures markets. Using the 24 commodities included in the S&P GSCI for 2004–2019, we show that cumulative abnormal returns to a long-short strategy peaked at 72 basis points in the middle of the week following the rebalancing

This article tackles the issue of rational destabilization in the commodity markets. The theoretical framework is a three-period model with futures positions revised within the intermediate holding period of the spot market. Technical traders enter the market in the intermediate period. The model outcome is a multiplicity of equilibria that are a source of instability. We show that the risk management

This paper uses transfer entropy measures to analyze the information sharing between the option implied volatility, the realized volatility and the returns of six financial assets during the COVID-19 pandemic. The measures indicate increases in the information transmissions during the pandemic which are uniform across the volatilities and the returns of all assets. In these transmissions, the option

Feeder cattle are a heterogeneous commodity whose prices differ in important ways relative to the cattle specified in the CME Group Feeder Cattle futures contract. This necessitates estimation of optimal feeder cattle hedge ratios to manage price risk. Corn price is an important and often overlooked consideration when estimating feeder cattle hedge ratios. Corn price impacts feeder cattle weight-price

We examine the impact that information asymmetry has on the relationship between commodity futures contracts’ time-to-maturity and return volatility. Using mediation analysis, we find strong evidence that time-varying asymmetric information plays a significant role in influencing the time-to-maturity pattern of commodity futures return volatility. We argue that these results are partly a consequence

With the increasing integration of wind and photovoltaic power in the whole European power system, there is a longing for detecting how to trade energy in the ever-changing intraday market from electric power industries. Intraday trading becomes even more relevant in the wake of the European Cross-Border Intraday (XBID) project, which aims at integrating electricity trading across Europe. Therefore

We employ the R-vine copula approach to study the dependence structures between non-ferrous metal commodity futures on the London Metal Exchange, focusing on the comparison before and after structural breaks. We find that the center of the dependence structures between non-ferrous metal futures shifts from copper to zinc after the first structural break in 2008 and moves back to copper after the second

In this study, we address three key goals. First, we investigate the existence of outliers in commodity futures price data. Second, using an innovative and robust unsupervised machine learning outlier identification algorithm (UMLA), we investigate intervention models to filter the outlier effects. Third, using the specified UMLA models, we assess the impact of outliers on risk metrics of commodities

The LME is a major international commodity exchange for industrial metals. Both futures contracts and spot metals are traded there, and the textbook principle of the futures-spot convergence precisely holds there. In this paper, we formulate two claims about spot and futures return prediction. First, the predictors of futures price return should also predict spot price return with the same signs and

With a systematic approach, this study investigates the roles of the peak-valley prices and idiosyncratic factors in the information spillover mechanism between the electricity and carbon markets in Europe. Our findings show that electricity demand plays a crucial role in the idiosyncratic information spillover channel, especially in the risk spillover channel. Moreover, the German and Austrian electricity

The long-run behavior of real primary commodity prices, especially whether these series are trend stationary or contain a unit root, has been a topic of major debate in applied economics. In this paper, I perform a meta-analysis and combine the evidence of 12 representative studies on the subject in order to reach a unified conclusion about the presence of unit roots in these prices. The studies use

Cost management has received limited attention in the aquaculture industry due to historically high profit margins. This trend, however, is not likely to continue. This creates a need for knowledge on optimally managing financial risks. In this study, we address the joint input-output price hedging problem of salmon farmers. Along with salmon, we consider three essential commodities used in fish feed

We conduct a clinical analysis of the CBOT full membership that provides holders with rights to trade any of the exchange's contracts using a unique database of seat information from the period 1897–2020. We examine microstructure and asset pricing properties of seats including during periods before and following the CBOT's transition from trading primarily agriculture futures to financial futures

Using more than 140 years of data, we comprehensively analyze the predictive power of a broad set of business cycle variables for risk and return in commodity spot markets. We find that industrial production growth and inflation are the strongest predictors for future commodity returns. Several further variables help predict future commodity volatilities. The introduction of derivatives generally reduces

A measure of global economic activity (EA) is often used as input in macroeconometric models. Baumeister and Hamilton (2019) and Hamilton (2019) favor using the world industrial production index as a measure for global EA. Given the connections between variations in industrial production and demand for industrial commodities, such as crude oil, one is inclined to assume that changes in the world industrial

We examine how industry returns react to various oil shocks developed in Baumeister and Hamilton (2019) and find that oil supply shocks matter as much, if not more, as oil demand and economic activity shocks in driving industry returns. A long-short portfolio that buys (sells) industries benefiting (suffering) from negative oil supply shocks earns an initial abnormal monthly return of 0.88%. This return

This paper revisits the golden constant – gold's property of keeping constant purchasing power – via a comparison with a set of 17 commodities (energy, metals and agricultural products). We use graphical devices of the CPI-deflated commodity prices first, then stationarity tests designed to assess how fast the real prices of the commodities revert to their “constant” and, finally, measurements of their

In this paper, we model and forecast the volatility and correlation between oil prices and stock returns. Employing a recently innovated generalized autoregressive score (GAS) model based on the score function and using long historical data spanning from 1871 to 2020, we find a time-varying relationship between oil prices and stock returns. Specifically, the dynamic correlations between crude oil and

We document the properties of the first diversified commodity futures index introduced by the Dow Jones Company in 1933, and use its live track record to study the properties of the asset class in an experimental setting that does not suffer from backfill, selection, or survivorship biases. Despite the setbacks posed by contract failure and trading suspensions of several index constituents, the index

The recent financialization in commodity futures markets has prompted many calls for restricting speculative activity due to its detrimental effect on market quality. One aspect of market quality is that new information is instantaneously reflected in the price. This article studies how speculative activity affects informational efficiency of commodity futures markets. We document significant temporal

Increasingly commodities have become an asset class in a process called financialization. Many institutional investors, looking for ways to expand their diversification opportunities, are holding positions in a commodity futures index and use them as a performance benchmark. Thus, institutional commodity holdings in commodities has expanded significantly. In this paper we estimate the risk premium

This paper uses Meta-Granger analysis to explain and summarize the mixed results in the literature on the impact of financial speculation on commodity prices. The sample covers 2106 manually collected p-values from Granger causality (GC) tests reported in 54 prior studies. Our results show that the heterogeneity in previous findings can be largely explained by the commodity type under examination,

In August 2018, the US Department of Agriculture (USDA) ceased its practice of early media access during lockup, in which the news media have access to crop and livestock reports ahead of scheduled announcements. News media no longer have a 90-min window to digest and write custom reports and are now subject to the same information distribution rules as the public. We examine the impact of this regulatory

The paper examines the impact of oil and gas price shocks on bank performance in the major oil and gas exporting GCC countries, using data for the period 2000–2017. Results indicate that oil and gas price rises have a direct bearing on bank performance through the channel of price-induced bank deposits and related lending to business activities. The negative impact on bank performance due to a drop

The paper studies the return–volatility relationship in a range of commodities. We develop a commodity price model and show that the volatility of price changes can be positively or negatively related to demand shocks. An “inverse leverage effect”—the volatility is higher following positive price shocks—is found in more than half of the daily spot prices. The effect is weaker in the three-month futures

The aim of this study was to examine the relationship between the oil price shock of 2014 and earnings management of oil companies listed on the Oslo Stock Exchange. The results revealed a significant increase in earnings management following the oil price drop. Moreover, we found that companies adjusted their earnings and abnormal income-decreasing accruals were identified during the third and fourth

This study compares the impact of Prospective Plantings, Acreage, Crop Production, Crop Production Annual Summary, Grain Stocks, WASDE, Cattle on Feed, and Hogs and Pigs reports on corn, soybean, wheat, cotton, live cattle, and lean hogs markets over 1985–2018. Simultaneous releases of several reports are handled by evaluating the impact of report clusters. Our approach allows us to demonstrate the

We examine price transmissions among farm, wholesale and retail U.S. beef markets using two types of retail price data, one collected by the Bureau of Labor Statistics (BLS), and the other one collected at the point of sale using electronic scanners. Using a test based on the simulation of nonlinear impulse response functions, we find no evidence of vertical asymmetric price transmissions in models

This paper evaluates an instance of large-scale hedging misfortune in the Australian sugar industry. A single corporation, known as Queensland Sugar Limited (QSL), was responsible for selling the entire volume of sugar exported from Australia. In 2010, QSL incurred over $100 million (2010 AUD) in hedging losses when harvest volumes were below expectations due to heavy La Niña rainfall. Sugar prices