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Silicon has wide applications in the electronic, ferrous foundry and chemical industries but does not possess a well-developed forward or futures market. Here we investigate potential candidates to cross-hedge silicon’s price risk. Our results show that a proxy for a newly introduced Chicago Mercantile Exchange (CME) ferrous contract, iron and steel scrap, explains close to 60% of the variation in silicon price changes. Estimated Generalized Least Squares (EGLS) estimations of hedge ratios are shown to produce more consistent hedge-effectiveness over OLS counterparts. Thus, it appears that the ferrous contract could fulfil this role. [ABSTRACT FROM PUBLISHER]

We test for herding using data on aggregate trader positions for four commodities over 20 years. We show that while the positions of commodity traders are highly related, the relatedness falls short of herding. The cross-commodity relatedness in trader positions is almost entirely explained by common demand and supply factors. [ABSTRACT FROM AUTHOR]

Futures contract switching in the weeks prior to expiration of the nearby contract produces some price and spread effects. An examination of daily and intraday prices in five commodity markets suggests contract switching has a greater impact on the volatility of nearby contract prices than on the volatility of next- to-nearby contract prices. The correlation between the nearby and next-to-nearby contracts remains fairly high throughout the switching period, but declines sharply in the last week of trading. The switching period witnesses fairly complex patterns of returns autocorrelation, cross-serial correlation, and leadership. Over the switching period, there is positive first-order autocorrelation and cross-correlation in daily returns, but negative first-order autocorrelation and cross-correlation for half-hourly returns. Switching activity is found not to have an important impact on variation in price differences of the two contracts (the spread). Variation in the spread rises abnormally after the switching interval, in the days close to expiration. It is only in the last week of trading that the nearby contract is found to bear the burden of convergence to the spread. The evidence suggests that the nearby contract is not a lame duck until the last few days before expiration. [ABSTRACT FROM AUTHOR]

Focuses on the characteristics of index futures leadership, basis behavior and trader selectivity in the U.S. Correlation between index futures and cash markets; Determination of transaction costs; Adjustment of interest rates.

Using 15 minute intraday data, we analyse the price discovery process among the strategically-linked gold and silver futures contracts and examine the role of the intermarket spread in their price dynamics. The multivariate model employed allows for intermarket volatility spillover and asymmetric-spread effects on the variance and covariance of the two contracts. The data suggest that the silver contract bears the majority of the burden of convergence to the gold-silver spread. This evidence is noteworthy since the silver contract was by far the more volatile of the two contracts over the period studied. [ABSTRACT FROM AUTHOR]

The TED (Treasury over Eurodollar) spread between T-bill and Eurodollar futures is one of the relationships among interest rate contracts that is most actively watched by traders. The Eurodollar future is the more liquid market, but as the anchor of the default-free U.S. Treasury yield curve, the T-bill rate is one of the fundamental financial variables in our economy. This article looks at the behavior of the TED spread from minute to minute, to determine whether the two futures markets are cointegrated (they are) and which way information flows. While the liquid Eurodollar contract does make most of the adjustment when the spread becomes unusually wide or narrow, each market is found to transmit information to the other one, with large changes in the spread creating increased short-run correlation between them. [ABSTRACT FROM AUTHOR]

We examine the relationship between the commitments of three of the largest groups of futures traders and the abnormal price movements in five agricultural commodities. The general evidence suggests that the commitments of futures traders have been increasing over time, whereas the frequency of price jumps have not. Regression results indicate a negative relationship between price jumps and the commitments of speculators and small traders. There is also evidence of a negative relationship between the number of speculators and cash market volatility, consistent with a host of speculation-based theories. [ABSTRACT FROM AUTHOR]

Presents a study which investigates the reactions in the Japanese yen futures and spot markets to scheduled United States macroeconomic announcements. Information on the extent of the spillover of volatility between futures and spot markets is information driven; Questions whether regulation of futures markets will lead to less volatile spot markets; Indications of the results of the study.

This study examines the ability of existing futures contracts to hedge the returns on real estate investment trusts (REITs). The results from various hedging strategies suggest that existing futures contracts do not provide the means to effectively hedge REIT returns. REITs could remain unhedgeable until futures contracts written specifically on REITs are developed. [ABSTRACT FROM AUTHOR]

This article examines the relationship between exchange rate variability and the number of contracts held by three major groups of futures traders. The study is motivated by the inability of prior research on the futures trading, exchange rate variability relationship to provide specific answers as to whether certain groups of traders destabilize spot markets. Such answers are thought to be of great interest to market observers, regulators and governments concerned with promoting price stability. There is relatively little evidence on whether or not the level of trading activity in currency futures affects spot exchange rate behavior. The above studies employ aggregate futures activity measures and are unable to test for the relationship between the futures commitments of groups of traders and exchange rate variability. The evidence suggests that while typical levels of futures commitments are not destabilizing, surges in the level of commitments of large speculators and small traders cause exchange rates to be more volatile. However, we find that the actual release of information regarding prior trader commitments has no impact on spot prices.