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Spot contract

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


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TL;DR: In this paper, the authors develop an equilibrium model of a competitive futures market in which investors trade to hedge positions and to speculate on their private information, and generate time-tomaturity patterns in open interest and spot price volatility that are consistent with empirical findings.
Abstract: 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-tomaturity patterns in open interest and spot price volatility that are consistent with empirical findings. AN ISSUE CENTRAL TO THE ANALYSIS of futures markets is the relationship between speculation and futures price volatility. A long line of models ~see, e.g., Grossman ~1977!, Bray ~1981!! have tried to understand the effects of speculation on futures price volatility. This line of research is economically relevant as speculative trades appear to be an important determinant of volatility in futures markets. For instance, Roll ~1984! finds that public information accounts for only a fraction of the movement in orange juice futures prices, which suggests that investors bring their own private information into the market through their trades. Unfortunately, existing models of speculation in futures are essentially static ones and cannot speak to a number of interesting aspects of returns and trading in futures markets. An example is the relationship between the price volatility and the timeto-maturity of a futures contract. The analysis of this issue is an important one and has a long history. Assuming the existence of a representative investor and an exogenous spot price process, Samuelson ~1965! shows that when there is a mean-reverting component in the spot price process and no

64 citations

Journal ArticleDOI
TL;DR: In this paper, the effect of forward sale (pre-sale) activities on the volatility of spot prices in the real estate market in Hong Kong has been examined, showing that the volatility increased significantly after forward sales were severely dampened by regulatory control measures introduced in 1994, but decreased again when the measures were partly relaxed in 1998.
Abstract: We examine the effect of forward sale (pre-sale) activities on the volatility of spot prices in the real estate market. The abundance of pre-sales data and major changes in regulatory control on the pre-sale market during the 90's in Hong Kong allow us to undertake empirical tests using Hong Kong's real estate data. Our results show that the volatility of spot prices increased significantly after forward sales were severely dampened by regulatory control measures introduced in 1994, but decreased again when the measures were partly relaxed in 1998. The results contribute to the long lasting debate on whether the introduction of a futures market reduces the volatility of spot prices. Previous studies were mainly conducted in markets with low transaction costs, notably financial markets. By utilizing the unique regulatory changes in the pre-sale market of Hong Kong, we are able to conduct an experiment on the conditional volatility of spot prices in a high information-cost environment, thereby shedding light on the important role of forward housing contracts in providing price expectation information for spot trading.

64 citations

Journal ArticleDOI
01 Sep 2014-Energy
TL;DR: In this paper, the authors investigate how electricity markets relate to emission allowance prices and find that natural gas, oil prices and the switching possibilities between gas and coal for electricity generation are significant drivers of the carbon futures price.

64 citations

Journal ArticleDOI
TL;DR: In this article, the half-hourly spot price data from the New Zealand Electricity Market is used to reveal properties of electricity spot prices that cannot be captured by the statistical models, commonly used to model financial asset prices, that are increasingly used to predict electricity prices.
Abstract: We reveal properties of electricity spot prices that cannot be captured by the statistical models, commonly used to model financial asset prices, that are increasingly used to model electricity prices. Using more than eight years of half-hourly spot price data from the New Zealand Electricity Market, we find that the half-hourly trading periods fall naturally into five groups corresponding to the overnight off-peak, the morning peak, daytime off-peak, evening peak, and evening off-peak. The prices in different trading periods within each group are highly correlated with each other, yet the correlations between prices in different groups are lower. Models, adopted from the modelling of security prices, that are currently applied to electricity spot prices are incapable of capturing this behavior. We use a periodic autoregression to model prices instead, showing that shocks in the peak periods are larger and less persistent than those in off-peak periods, and that they often reappear in the following peak period. In contrast, shocks in the off-peak periods are smaller, more persistent, and die out (perhaps temporarily) during the peak periods. Current approaches to modelling spot prices cannot capture this behavior either.

64 citations

Journal ArticleDOI
TL;DR: In this paper, a simple model is presented in which opening futures markets in a non-storable commodity encourages producers to choose riskier production techniques which destabilizes supply and hence the spot price.
Abstract: Futures markets allow agents to shift price risk onto speculators and encourages them to take riskier decisions. Historically their main impact has been to encourage the storage of commodities, thus arbitraging prices over time and reducing price fluctuations. This paper presents a simple model in which opening futures markets in a nonstorable commodity encourages producers to choose riskier production techniques which destabilizes supply and hence the spot price. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

64 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
20241
202376
2022205
2021111
2020115
2019106