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Does the design of spot markets matter for the success of futures markets? Evidence from dairy futures
Author(s) -
Białkowski Jędrzej,
Koeman Jan
Publication year - 2018
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21883
Subject(s) - futures contract , forward market , hedge , spot market , spot contract , financial economics , futures market , stock exchange , economics , forward contract , business , finance , engineering , electricity , ecology , electrical engineering , biology
This study provides evidence of the importance of a well‐defined and functioning spot market for the success of the associated futures market. Our analysis of hedging effectiveness and hedge ratio persistence shows that none of the United States (US) spot market indices may be hedged effectively with the Chicago Mercantile Exchange nonfat dry milk futures at short hedging horizons, whereas the New Zealand (NZ) Stock Exchange whole milk powder futures contract is an effective hedge for the Global Dairy Trade spot pricing benchmark. Four important dimensions of spot market design are identified—timeliness, market‐based measurement, forward‐spot separation, and inclusiveness.