Journal article
Asymmetric adjustments in the ethanol and grains markets
Energy economics, v 34(6), pp 1990-2002
Nov 2012
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This paper examines the long- and short-run asymmetric adjustments and pairs trades for nine pairs of spot and futures prices, itemized as three own pairs for three different bio-fuel ethanol types, three own pairs for three related agricultural products, namely corn, soybeans and sugar, and three cross pairs that included hybrids of the spot price of each of the agricultural products and an ethanol futures price. Most of the spreads' asymmetric adjustments generally occur during narrowing. The three ethanol pairs that contain the eCBOT futures with each of Chicago spot, New York Harbor spot and Western European (Rotterdam) spot show different long-run adjustments, arbitrage profitable opportunities and price risk hedging capabilities. The asymmetric spread adjustments for the three grains are also different, with corn spread showing the strongest long-run widening adjustment, and sugar showing the weakest narrowing adjustment. Among others, the empirical analysis indicates the importance of potentially hedging the spot prices of agricultural commodities with ethanol futures contracts, which sends an important message that the ethanol futures market is capable of hedging price risk in agricultural commodity markets. The short-run asymmetric adjustments for individual prices in the nine pairs, with the exception of the corn own pair, underscore the importance of futures prices in the price discovery and hedging potential, particularly for ethanol futures.
► The paper examines asymmetric adjustments for ethanol and agricultural products. ► Most of the spreads' asymmetric adjustments generally happen during narrowing. ► The pairs trade is more suitable during narrowing than widening. ► The short-run asymmetric adjustments for individual prices underscore the importance of futures prices.
Metrics
Details
- Title
- Asymmetric adjustments in the ethanol and grains markets
- Creators
- Chia-Lin Chang - National Chung Hsing UniversityLi-Hsueh Chen - University of California, Los AngelesShawkat Hammoudeh - Drexel UniversityMichael McAleer - Erasmus University Rotterdam
- Publication Details
- Energy economics, v 34(6), pp 1990-2002
- Publisher
- Elsevier
- Grant note
- Japan Society for the Promotion of Science (gs4) National Science Council, Taiwan (gs3) Australian Research Council (gs2) National Science Council, Taiwan (gs1)
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000310943800027
- Scopus ID
- 2-s2.0-84866298978
- Other Identifier
- 991014877698204721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Economics