Default Premiums in Commodity Markets: Theory and Evidence

We model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the “Hunt Brothers”episode. Changes in default premiums are measured and related to the sequence of events in the metals markets during this period. Results suggest first that ex ante costs of nonperformance can be a significant, priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs. The evidence has implications for both theoretical and empirical research on commodity markets.     

中国大宗商品期货市场定价机制研究

大宗商品期货市场是我国资本市场的重要组成部分,其定价有效性关系到投资者套期保值和价格发现等功能的实现。本文对国际前沿研究中常用的定价因子进行全面系统梳理,并对这些因子对我国商品期货合约收益率的解释和预测能力进行检验。在此基础上,本文构建了适用于我国大宗商品期货市场的包含市场、基差以及基差动量的三因子定价模型。进一步研究表明,基于大宗商品存储理论和现货存货数据构建的投资组合收益率可以被本文三因子模型有效解释,验证了经典的存储理论在我国的适用性。此外,本文对基差与基差动量两个重要因子的经济学意义进行了阐释。本文研究为进一步厘清大宗商品期货市场定价机制提供了一定参考。     

Commodity Trade and the Carry Trade: A Tale of Two Countries

Persistent interest rate differentials account for much of the currency carry trade profitability. “Commodity currencies” offer high interest rates on average, while countries that export finished goods tend to have low interest rates. We develop a general equilibrium model of international trade and currency pricing where countries have an advantage in producing either basic inputs or final goods. In the model, domestic production insulates commodity‐producing countries from global productivity shocks, forcing final‐good producers to absorb them. Commodity‐currency exchange rates and risk premia increase with productivity differentials and trade frictions. These predictions are strongly supported in the data.     

A Tale of Two Countries: Comparing the US and Chinese Housing Markets

The Journal of Real Estate Finance and Economics - The recent surge in property values in China has been similar to the surge in the U.S before the crash in 2007. This raises concerns about whether...     

A Tale of Two Index Futures: The Intraday Price Discovery and Volatility Transmission Processes Between the China Financial Futures Exchange and the Singapore Exchange

This is the first study to examine the intraday price discovery and volatility transmission processes between the Singapore Exchange and the China Financial Futures Exchange. Using one- and five-minute high-frequency data from May to November 2011, the authors find that the Chinese Securities Index 300 index futures dominate Singapore's A50 index futures in both intraday price discovery and intraday volatility transmission. However, A50 futures contracts also make a substantial contribution (26-37 percent) to the price discovery process. These results have important implications for both traders and policymakers.     

A Tale of Two Segmented Markets in China: The Informative Value of Corporate Environmental Information Disclosure for Foreign Investors

Focusing on the unique setting of two segmented stock markets in China and using a sample of Chinese listed firms issuing both A-shares and B-shares during the period of 2007–2014, this study examines the influence of corporate environmental information disclosure on foreign share discount, and further investigates the moderating effect of globalizing the board. The findings show that environmental information disclosure is significantly negatively related to foreign share discount, suggesting that environmental information disclosure provides valuable and incremental information to mitigate information asymmetry between domestic and foreign investors, and thus reduces foreign share discount. Moreover, globalizing the board reinforces the negative relation between environmental information disclosure and foreign share discount. These findings are robust to alternative measures of environmental information disclosure and foreign share discount, and further, these conclusions are still valid after controlling for the endogeneity problem.     

作为资产的商品期货研究

商品期货在国际市场被机构投资者称为"可选择的投资类别".国际商品期货市场吸引了对冲基金、养老基金等机构投资者的参与.本文在投资组合和资产配置理论框架下,以商品期货价格指数为基础探讨商品作为一种投资类别的特征和可行性.研究结果发现:商品期货指数具有不同于股票、债券的风险收益特性,机构资产组合中加入大宗商品能够提高投资组合的效果.     

Futures Markets and Informational Efficiency: A Laboratory Examination

Through the use of laboratory market methodology, the effect of a futures market on the time path of asset prices is studied and competing models of asset pricing are analyzed. With replication of market conditions, the predictions of a rational expectations equilibrium model are relatively accurate whether or not futures markets are present. However, the presence of futures markets increases the speed with which an efficient equilibrium is achieved. While this more rapid adjustment can increase the variance of spot market prices as they move to equilibrium, this increased variance reflects efficiency gains due to better information.     

Explaining Premiums in Restricted DR Markets and Theri Implicartions: The Case of Infosys

I examine several possible explanations for why Infosys' Deposirtary Receipts (DRs) trade at significant premiums to the equivalent underlying domestic shares. I find that a limited supply of DRs and a downwoard-sloping demand curve, significant transaction costs associated with investing directly in the domestic market, and trend-chasing by smaller and potentially uninformed investors partly explain the DR premiums. I also examine the wealth effects of non-capital raising secondary depositary receipt offerings by Infosys Technologies and find significant wealth transfers from existing DR holders to selling domestic shareholders who are comprised significantly of Infosys' founders.     

Default Risk in Futures Markets: The Customer-Broker Relationship

The traditional view of the futures clearinghouse as an insurer that eliminates the need for customers to evaluate default risk is inaccurate. A clearinghouse member default in 1985 confirms that the clearinghouse only guarantees payment from member to member, not from customer to customer or member to customer. Thus, non-defaulting customers are subject to losses as a result of the action of individuals with whom thay have no contractual obligations. This study models the behavior of customers choosing a futures commission merchant (FCM) given the current legal position of the clearinghouse. In a single-period model with symmetric information, customers can eliminate their exposure to defaults of other customers or of their FCM only by choosing to trade through “boutique” (undiversified) FCMs. In practice, monitoring and rebalancing costs may impede the attainment of zero default risk. However, FCM diversification remains an important factor in customer choice of an FCM. When setting capital requirements, clearinghouses and government regulators need to consider the implications of diversification for both customer and market protection.     

A Model of Returns and Trading in Futures Markets

This paper develops an equilibrium model of a competitive futures market in which investors trade to hedge positions and to speculate on their private information. Equilibrium return and trading patterns are examined. (1) In markets where the information asymmetry among investors is small, the return volatility of a futures contract decreases with time-to-maturity (i.e., the Samuelson effect holds). (2) However, in markets where the information asymmetry among investors is large, the Samuelson effect need not hold. (3) Additionally, the model generates rich time-to-maturity patterns in open interest and spot price volatility that are consistent with empirical findings.     

The Regulation of Financial and Other Futures Markets

My assignment is to speak about the regulation of financial futures markets, but in this respect the differences between financial futures and the traditional commodity futures are comparatively minor. Most of what I have to say, therefore, will apply to the regulation of futures markets in general. Towards the end of my remarks I shall say something about the problems that are particular to financial futures.     

Financial Markets Trends and Studies of Singapore Futures Markets

In this paper we explore some recent trends in the financial market and also report some studies of the Singapore futures markets. A characterization of trends shows that national securities markets are much closer than before. This means the linkages between securities and their derivatives and amongst themselves have be come much stronger. Secondly, the advent of sophisticated risk products and instruments and the knowledge to use them effectively would become a common theme together with the idea of value enhancements. Thirdly, computerizations and the internet will play an increasingly important role. So will empirical financial research become increasingly microscopic. The discussion will be supported by the experiences of the Singapore futures markets and various empirical research evidences. The paper also provides a detailed study of causality-in-variance test of information transmission between SIMEX and Osaka Stock Exchange on the Nikkei 225 stock index futures trading prior to, during, and immediately after the announcement of the collapse of Barings. The results are indicative of very strong international market linkages and a portent of things to come.     

A Tale of Two Classes: The Privatisation of Medway Ports

This paper presents a case study of the privatisation of a UK port, Medway Ports, which was sold to a Management and Employee Buyout consortium in 1992 with assistance from the accountancy firm of Price Waterhouse. Half the work force was then dismissed by the new management and forced to sell back their shares which were valued at £2.50 by another accounting firm, KPMG Peat Marwick. Within a short time, Medway was resold to Mersey Dock & Harbour Company for £37 per share, making millions for Medway's directors and financial backers. The resale price was eight times more than the amount the UK Treasury had received from the original sale only 18 months earlier prompting an investigation into the government's handling of the privatisation. The study examines the privatisation of Medway Ports as a focal point for understanding the role major accountancy firms have played in the neo-liberal privatisation programme.     

Consumption Betas and Backwardation in Commodity Markets

This paper examines the relationship between commodity consumption betas and realized commodity futures contract risk premiums. A linear relationship between risk premiums and consumption betas is developed based on a consumption oriented CAPM. The parameters of this linear model are estimated using fourteen commodities.     

Backwardation in Oil Futures Markets: Theory and Empirical Evidence

Oil futures prices are often below spot prices. This phenomenon, known as strong backwardation, is inconsistent with Hotelling's theory under certainty that the net price of an exhaustible resource rises over time at the rate of interest. We introduce uncertainty and characterize oil wells as call options. We show that (1) production occurs only if discounted futures are below spot prices, (2) production is non-increasing in the riskiness of future prices, and (3) strong backwardation emerges if the riskiness of future prices is sufficiently high. The empirical analysis indicates that U.S. oil production is inversely related and backwardation is directly related to implied volatility.     

Informed Futures Trading and Price Discovery: Evidence from Taiwan Futures and Stock Markets

This article focuses on the information effects between the futures market and its spot market. Intraday data are used to investigate the lead-lag relationships between the returns and trading activity of Taiwan stock index futures and the spot returns. We focus on the transmission direction and the sources of information. Consistent with most previous studies, our results show that other than the contemporaneous relationship predicted by carry-cost theory and efficient market theory, futures returns significantly lead spot returns, which implies that informed trades may occur in the futures market. Using private transaction information, net open buy, as a proxy for futures trading activity and distinguishing different types of futures traders, we find that foreign institutional traders are the major source of informed trades because their trading has predictive power for future movements in both spot and futures prices. Traders in other categories are information laggards.     

Shock and Volatility Transmission in the Futures and Spot Markets: Evidence from Turkish Markets

This paper examines the volatility transmission mechanism between the futures and corresponding underlying asset spot markets, focusing on Turkish currency and stock index futures traded on the lately established Turkish Derivatives Exchange (TURKDEX). Employing multivariate generalized autoregressive conditional heteroskedasticity modeling, which allows for potential spillovers and asymmetries in the variance-covariance structure for the market returns, the paper investigates the volatility interactions among each of the three futures-spot market systems. For all market systems under study, the volatility spillovers are found to be important and bidirectional. For the stock index market system, in line with the previous literature, volatility shows asymmetric behavior and strong asymmetric shock transmission. The main implication is that investors need to account for volatility spillovers and asymmetries among the futures and the spot markets to correctly build hedging strategies.