Limits to arbitrage and hedging: Evidence from commodity markets |
| |
Authors: | Viral V Acharya Lars A Lochstoer Tarun Ramadorai |
| |
Institution: | 1. NYU Stern School of Business, United States;2. CEPR, United Kingdom;3. NBER, United States;4. Columbia Business School, Columbia University, Uris Hall 405B, 3022 Broadway, New York, NY 10027, United States;5. Saïd Business School, United Kingdom;6. Oxford-Man Institute of Quantitative Finance, United Kingdom |
| |
Abstract: | We build an equilibrium model of commodity markets in which speculators are capital constrained, and commodity producers have hedging demands for commodity futures. Increases in producers' hedging demand or speculators' capital constraints increase hedging costs via price-pressure on futures. These in turn affect producers' equilibrium hedging and supply decision inducing a link between a financial friction in the futures market and the commodity spot prices. Consistent with the model, measures of producers' propensity to hedge forecasts futures returns and spot prices in oil and gas market data from 1979 to 2010. The component of the commodity futures risk premium associated with producer hedging demand rises when speculative activity reduces. We conclude that limits to financial arbitrage generate limits to hedging by producers, and affect equilibrium commodity supply and prices. |
| |
Keywords: | G00 G13 G32 Q49 |
本文献已被 ScienceDirect 等数据库收录! |
|