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on Agricultural Economics |
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Issue of 2012‒02‒15
two papers chosen by |
| By: | Wei-Xing Zhou (ECUST) |
| Abstract: | The common wisdom argues that, in general, large trades cause large price changes, while small trades cause small price changes. However, for extremely large price changes, the trade size and news play a minor role, while the liquidity (especially price gaps on the limit order book) is a more influencing factor. Hence, there might be other influencing factors of immediate price impacts of trades. In this paper, through mechanical analysis of price variations before and after a trade of arbitrary size, we identify that the trade size, the bid-ask spread, the price gaps and the outstanding volumes at the bid and ask sides of the limit order book have impacts on the changes of prices. We propose two regression models to investigate the influences of these microscopic factors on the price impact of buyer-initiated partially filled trades, seller-initiated partially filled trades, buyer-initiated filled trades, and seller-initiated filled trades. We find that they have quantitatively similar explanation powers and these factors can account for up to 44% of the price impacts. Large trade sizes, wide bid-ask spreads, high liquidity at the same side and low liquidity at the opposite side will cause a large price impact. We also find that the liquidity at the opposite side has a more influencing impact than the liquidity at the same side. Our results shed new lights on the determinants of immediate price impacts. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1201.5448&r=agr |
| By: | Carbonez, Katelijne; Nguyen, Thi Tuong Van; Sercu, Piet |
| Abstract: | This paper revisits the asymmetric effect of the basis on commodity spot and futures price volatilities documented by Kogan, Livdan and Yaron (2008) and Lien and Yang (2008). Kogan et al. (2008) show both theoretically and empirically that, for a non-storable consumption good, the relationship between commodity price volatility and the basis exhibits a V-shape. Lien and Yang (2008) illustrate the existence of an asymmetric effect of the basis on commodity price volatilities for storable commodities. Their results seem to imply that both scarcity and abundance increase spot and futures price volatility, a counter-intuitive result. The aim of this article is twofold: (i) test the presence and the robustness of the asymmetric effect for storable agricultural commodities by analyzing different sample periods, longer horizons and alternative utility functions; and - given that this asymmetric effect turns out not to be robust - (ii) explore new variables besides the basis to proxy for scarcity, analyze whether they exhibit an asymmetric effect and test their performance in modeling storable commodity price volatility and in hedging futures positions. Our results provide little support for a V-shaped relationship between the basis and storable agricultural commodity price volatilities. Though an asymmetric effect is present in that the size of the coe±cient for a positive basis is much larger than for a negative basis, a negative basis does not lead to higher volatilities. Moreover, we find that the strong hedging performance documented by Lien and Yang (2008) when including the asymmetric basis in the volatility specification is not robust across sample periods, for longer hedging horizons and for alternative utility functions. More positively, though, our results indicate that alternative scarcity specifications do have the expected positive link with volatility and often outperform more simple models in terms of hedging performance. Unfortunately, no single variable consistently leads to better results out-of-sample and there is often no correspondence between the best performing model in- and out-of-sample. |
| Date: | 2010–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:ner:leuven:urn:hdl:123456789/262181&r=agr |