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Commodity Spot Prices: An Exploratory Assessment of Market Structure and Forward‐Trading Effects
Author(s) -
SLADE MARGARET E.,
THILLE HENRY
Publication year - 2006
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00480.x
Subject(s) - spot contract , spot market , forward price , economics , volatility (finance) , normal backwardation , algorithmic trading , forward contract , commodity market , commodity , market microstructure , financial economics , monetary economics , econometrics , futures contract , order (exchange) , finance , electricity , electrical engineering , engineering
We assess how characteristics of product and forward markets affect levels and volatilities of commodity spot prices. We examine (i) how product market structure and forward market trading affect spot market games, (ii) the links between product market structure and spot price stability, (iii) whether forward trading destabilizes spot prices, and (iv) how information arrival affects price volatility and the volume of trade. We find that market structure models of the price level but not of price stability receive support, that increased forward trading leads to lower prices, and that the relationship between trading and price instability is indirect via a common causal factor.