Spot contract

About: Spot contract is a research topic. Over the lifetime, 3437 publications have been published within this topic receiving 91599 citations.

Forecasting Commodity Prices: Futures Versus Judgment

Abstract: This paper assesses the performance of three types of commodity price forecasts--those based on judgment, those relying exclusively on historical price data, and those incorporating prices implied by commodity futures. For most of the 15 commodities in the sample, spot and futures prices appear to be nonstationary and to form a cointegrating relation. Spot prices tend to move toward futures prices over the long run, and error-correction models exploiting this feature produce more accurate forecasts. The analysis indicates that on the basis of statistical- and directional-accuracy measures, futures-based models yield better forecasts than historical-data-based models or judgment, especially at longer horizons.

Inventories as an Asset: The Volatility of Copper Prices

Abstract: The spot price of copper metal is known to be extremely volatile. From 1958 to 1980, the mean monthly average price was $0.49 per pound (in constant 1967 dollars), while the standard deviation of month-to-month changes in the real price was $0.06. Claims to copper inventories are traded on the London Metal Exchange (LME), a competitive world asset market. This paper empirically investigates the dynamics of copper spot prices on the LME, focusing on the rate of return to holding copper metal and on the implications of inventory stockouts for this rate of return. We make one major departure from the standard economic theory of exhaustible resources.2 Instead of assuming constant short-run marginal cost (SRMC), we incorporate rising SRMC of extraction into the model.3 This technological assumption provides an economic motive for production smoothing by holding inventories. Equilibrium inventory holdings ameliorates rising SRMC by moving extraction to low SRMC time periods. We show that this amelioration is imperfect because of inventory stockouts. When stockouts can occur, the spot price of a resource reflects transient shocks to its scarcity value as well as permanent shifts. More specifically, the economic motive for inventory holding affects the equilibrium price dynamics of exhaustible resources in two ways. First, as long as positive inventories are being held, their holders should earn the competitive rate of return. Thus, the price of extracted resource should rise at the rate of interest in expected value. This result differs from most recent theoretical studies of exhaustible resources, which conclude that price minus marginal extraction cost should rise at the rate of

Time-Varying Risk Premia in the Foreign Currency Futures Basis

Abstract: Significant time-varying risk premia exist in the foreign currency futures basis, and these risk premia are meaningfully correlated with common macroeconomic risk factors from equity and bond markets. The stock index dividend yield and the bond default and term spreads in the U.S. markets help forecast the risk premium component of the foreign currency futures basis. The specific source of risk matters, but the relationships are robust across currencies. The currency futures basis is positively associated with the dividend yield and negatively associated with the spread variables. These correlations cannot be attributed to the expected spot price change component of the currency futures basis, thus establishing the presence of a time-varying risk premium component in the currency futures basis.(This abstract was borrowed from another version of this item.)