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Commodity futures markets : dynamic interrelationships between financial asset markets, energy markets and traditional agricultural commodity markets

Valeri Natanelov (2014)
abstract
This doctoral thesis discerns the complicated dynamic interrelationships between financial asset markets, energy markets and traditional agricultural commodity markets. Recently, various factors have dramatically changed the economic relationships between these important markets which contributed to greater price volatility and complex price transmissions across these markets. Via the use of cointegration methodologies on stock and futures markets four price relationships have been scrutinized with respect to agricultural commodities and crude oil markets; crude oil and BRIC stock markets; crude oil, corn and ethanol markets; and Indian government sugar policy and global sugar and commodity futures indices. Crude oil futures are shown to be affecting mature commodity futures markets. Recently, policies encouraging biofuel production have changed the mechanisms of influence of crude oil futures prices on several agricultural commodity markets. It has been shown that co-movement is a dynamic concept and that some economic and policy development may change the relationship between commodities. Specifically, biofuel policy buffers the co-movement of crude oil and corn futures until the crude oil prices surpass a certain threshold. Consequently, the impact of crude oil price movements on heterogeneous BRIC economies is analyzed. Crude oil futures prices are found to have an impact on markets in two distinct manners. The first being the traditional impact of energy, being one of the main production factors, on the economies. In parallel, the information component of crude oil futures price fluctuations has an additional impact on the markets. In case of the complex relationships between crude oil, corn and ethanol futures markets, a strong relationship between crude oil and corn markets on one side, and crude oil and ethanol on the other has been found. In addition, corn futures market became more sensitive to volatility due to ethanol demand-sinks. Overall, the markets exhibit great dependency on information shifts. Consequent analysis of the Indian and global sugar and commodity indices futures offers additional insight on the bigger picture. The heterogeneous and complex Indian sugar policies, in combination of limited access and knowledge of futures markets, cause decoupling between the Indian sugar futures prices and the regional prices. Indian sugar futures markets are led by the information from global commodity markets. This division in price formation of Indian regional (spot) sugar markets and the futures markets indicates a distinct difference in the underlying price formation process. The main contributions of this research are: (i) novel use of threshold cointegration techniques to model policy interventions; (ii) inductive analytic design incorporates policy and regime changes that could affect price transmission; (iii) policy price interventions cause impaired functioning of the futures markets; and (iv) agricultural commodities and commodity markets in general are more than ever responsive to information flows and experience price and volatility spillover effects among themselves. Finally, it is hinted to reconsider futures markets theory, from the perspective that the decision-making process in futures markets is based on a priori situation or information.
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author
promoter
UGent and Andrew McKenzie
organization
alternative title
Grondstof termijn markten : dynamische relaties tussen de markten voor financiële activa, energiemarkten en traditionele agrarische grondstoffenmarkten
year
type
dissertation
publication status
published
subject
keyword
market relationships, commodities, futures
pages
V, 157 pages
publisher
Ghent University. Faculty of Bioscience Engineering
place of publication
Ghent, Belgium
defense location
Gent : Faculteit Bio-ingenieurswetenschappen (A0.030)
defense date
2014-03-25 16:00
ISBN
9789059896871
language
English
UGent publication?
yes
classification
D1
copyright statement
I have retained and own the full copyright for this publication
id
4339503
handle
http://hdl.handle.net/1854/LU-4339503
date created
2014-03-19 11:56:55
date last changed
2017-09-28 11:31:43
@phdthesis{4339503,
  abstract     = {This doctoral thesis discerns the complicated dynamic interrelationships between financial asset markets, energy markets and traditional agricultural commodity markets. Recently, various factors have dramatically changed the economic relationships between these important markets which contributed to greater price volatility and complex price transmissions across these markets. Via the use of cointegration methodologies on stock and futures markets four price relationships have been scrutinized with respect to agricultural commodities and crude oil markets; crude oil and BRIC stock markets; crude oil, corn and ethanol markets; and Indian government sugar policy and global sugar and commodity futures indices. Crude oil futures are shown to be affecting mature commodity futures markets. Recently, policies encouraging biofuel production have changed the mechanisms of influence of crude oil futures prices on several agricultural commodity markets. It has been shown that co-movement is a dynamic concept and that some economic and policy development may change the relationship between commodities. Specifically, biofuel policy buffers the co-movement of crude oil and corn futures until the crude oil prices surpass a certain threshold. Consequently, the impact of crude oil price movements on heterogeneous BRIC economies is analyzed. Crude oil futures prices are found to have an impact on markets in two distinct manners. The first being the traditional impact of energy, being one of the main production factors, on the economies. In parallel, the information component of crude oil futures price fluctuations has an additional impact on the markets. In case of the complex relationships between crude oil, corn and ethanol futures markets, a strong relationship between crude oil and corn markets on one side, and crude oil and ethanol on the other has been found. In addition, corn futures market became more sensitive to volatility due to ethanol demand-sinks. Overall, the markets exhibit great dependency on information shifts. Consequent analysis of the Indian and global sugar and commodity indices futures offers additional insight on the bigger picture. The heterogeneous and complex Indian sugar policies, in combination of limited access and knowledge of futures markets, cause decoupling between the Indian sugar futures prices and the regional prices. Indian sugar futures markets are led by the information from global commodity markets. This division in price formation of Indian regional (spot) sugar markets and the futures markets indicates a distinct difference in the underlying price formation process. 
The main contributions of this research are: (i) novel use of threshold cointegration techniques to model policy interventions; (ii) inductive analytic design incorporates policy and regime changes that could affect price transmission; (iii) policy price interventions cause impaired functioning of the futures markets; and (iv) agricultural commodities and commodity markets in general are more than ever responsive to information flows and experience price and volatility spillover effects among themselves. Finally, it is hinted to reconsider futures markets theory, from the perspective that the decision-making process in futures markets is based on a priori situation or information.},
  author       = {Natanelov, Valeri},
  isbn         = {9789059896871},
  keyword      = {market relationships,commodities,futures},
  language     = {eng},
  pages        = {V, 157},
  publisher    = {Ghent University. Faculty of Bioscience Engineering},
  school       = {Ghent University},
  title        = {Commodity futures markets : dynamic interrelationships between financial asset markets, energy markets and traditional agricultural commodity markets},
  year         = {2014},
}

Chicago
Natanelov, Valeri. 2014. “Commodity Futures Markets : Dynamic Interrelationships Between Financial Asset Markets, Energy Markets and Traditional Agricultural Commodity Markets”. Ghent, Belgium: Ghent University. Faculty of Bioscience Engineering.
APA
Natanelov, V. (2014). Commodity futures markets : dynamic interrelationships between financial asset markets, energy markets and traditional agricultural commodity markets. Ghent University. Faculty of Bioscience Engineering, Ghent, Belgium.
Vancouver
1.
Natanelov V. Commodity futures markets : dynamic interrelationships between financial asset markets, energy markets and traditional agricultural commodity markets. [Ghent, Belgium]: Ghent University. Faculty of Bioscience Engineering; 2014.
MLA
Natanelov, Valeri. “Commodity Futures Markets : Dynamic Interrelationships Between Financial Asset Markets, Energy Markets and Traditional Agricultural Commodity Markets.” 2014 : n. pag. Print.