Essays on the Convenience Yield of Base Metals

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Thesis (PhD Doctorate)
Doctor of Philosophy (PhD)
Griffith Business School
Griffith Business School
The purpose of this thesis is to explore important determinants of the implied value inherited in a readily available durable commodity. Under the notion of convenience yield, such a value represents all the benefits that can be enjoyed by the owner of a physical asset. To disentangle the dynamic behaviour of this implied value embedded in the price of physical assets, various measures of scarceness of commodities are identified in this thesis and three interrelated studies are conducted to examine the lead-lag relationships between these measures and the convenience yield. In particular, I examine (1)how current geographical scarcity, represented by a regional supply/demand condition,affects the future convenience yield, (2) whether relative scarcity of a commodity contains valuable predictive information on its convenience yield, and (3) how the perceived level of a convenience yield is related to the second moment of futures price. Taking together, the results of these studies mostly support the presence of statistically significant relationships between the convenience yield and these measures, which can be used for constructing effective inventory and investment strategies.