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Hedging commodities in times of distress: The case of COVID‐19
Author(s) -
Magalhães Luiz Augusto,
Silva Thiago Christiano,
Tabak Benjamin Miranda
Publication year - 2022
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.22365
Subject(s) - futures contract , inefficiency , hedge , economics , market liquidity , financial economics , commodity , covid-19 , spot contract , monetary economics , business , microeconomics , finance , medicine , ecology , disease , pathology , infectious disease (medical specialty) , biology
This study examines the relation between the COVID‐19 pandemic and hedge efficiency in commodities futures markets. In particular, we first evaluate the informational content of commodity futures by investigating whether futures prices are accurate and unbiased predictors of future–spot prices, and then we identify key financial and real economy transmission channels associated with the pandemic. We use data of all contracts from all commodities traded at Brazilian futures markets from 2018 to 2020. We document market inefficiency and bias for all commodities. We also find that COVID‐19 has a negative correlation with hedge efficiency, and that liquidity, economic activity, export, and agriculture's employment share are transmission channels to hedge efficiency.