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Price leadership and information transmission in Australian water allocation markets

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  • Brooks, Robert
  • Harris, Edwyna

Abstract

This paper explores relationships in price and volumes across two trading zones of the water allocation market in the Goulburn-Murray Irrigation District in Northern Victoria. Previous papers have explored the reasons for price variations across trading zones within this region, our focus is to add to this literature by analysing how information is incorporated into market prices across different zones that can contribute to the presence of price leadership. Market prices reflect the incorporation of new information and evidence from financial markets suggests that this process leads to a pervasive lead–lag relationship across alternative markets offering similar products. As a result, markets with leading prices are thought to incorporate new information first. We examine if this lead–lag relationship exists in the far less liquid water market. Our analysis shows that the most actively traded of the two trading zones (the Greater Goulburn trading zone) plays a key role in price leadership. We postulate that the nature of production in the different zones contributes to this lead–lag relationship in prices because crops tend to be zone specific and each crop has different water requirements both within and between seasons. This drives the most active trading zone to play a greater role in the price discovery process.

Suggested Citation

  • Brooks, Robert & Harris, Edwyna, 2014. "Price leadership and information transmission in Australian water allocation markets," Agricultural Water Management, Elsevier, vol. 145(C), pages 83-91.
    • Handle: RePEc:eee:agiwat:v:145:y:2014:i:c:p:83-91
    DOI: 10.1016/j.agwat.2013.10.010
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    References listed on IDEAS

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    1. Donna Brennan, 2008. "Missing markets for storage and the potential economic cost of expanding the spatial scope of water trade," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 471-485, December.
    2. Edwyna Harris, 2011. "The Impact of Institutional Path Dependence on Water Market Efficiency in Victoria, Australia," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 25(15), pages 4069-4080, December.
    3. Wheeler, Sarah & Bjornlund, Henning & Zuo, Alec & Shanahan, Martin, 2010. "The changing profile of water traders in the Goulburn-Murray Irrigation District, Australia," Agricultural Water Management, Elsevier, vol. 97(9), pages 1333-1343, September.
    4. Wheeler, Sarah & Bjornlund, Henning & Zuo, Alec & Shanahan, Martin, 2010. "Erratum to "The changing profile of water traders in the Goulburn-Murray Irrigation District, Australia" by Wheeler et al. [Agric. Water Manage. 97 (2010) 1333-1343]," Agricultural Water Management, Elsevier, vol. 98(1), pages 222-225, December.
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    11. Brooks, Robert & Harris, Edwyna, 2008. "Efficiency gains from water markets: Empirical analysis of Watermove in Australia," Agricultural Water Management, Elsevier, vol. 95(4), pages 391-399, April.
    12. Robert Brooks & Edwyna Harris & Yovina Joymungul, 2013. "Price clustering in Australian water markets," Applied Economics, Taylor & Francis Journals, vol. 45(6), pages 677-685, February.
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    Cited by:

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    2. Amjad Ali & Marc Audi & Ismail Senturk & Yannick Roussel, 2022. "Do Sectoral Growth Promote CO2 Emissions in Pakistan? Time Series Analysis in Presence of Structural Break," International Journal of Energy Economics and Policy, Econjournals, vol. 12(2), pages 410-425, March.
    3. Changxin Xu & Lihua Yang & Bin Zhang & Min Song, 2021. "Bargaining power and information asymmetry in China’s water market: an empirical two-tier stochastic frontier analysis," Empirical Economics, Springer, vol. 61(5), pages 2395-2418, November.
    4. Zuo, Alec & Qiu, Feng & Wheeler, Sarah Ann, 2019. "Examining volatility dynamics, spillovers and government water recovery in Murray-Darling Basin water markets," Resource and Energy Economics, Elsevier, vol. 58(C).
    5. Simon de Bonviller & Alec Zuo & Sarah Ann Wheeler, 2019. "Is there evidence of insider trading in Australian water markets?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(2), pages 307-327, April.
    6. Cooper, Bethany & Crase, Lin & Pawsey, Nicholas, 2014. "Best practice pricing principles and the politics of water pricing," Agricultural Water Management, Elsevier, vol. 145(C), pages 92-97.
    7. de Bonviller, Simon & Wheeler, Sarah Ann & Zuo, Alec, 2020. "The dynamics of groundwater markets: Price leadership and groundwater demand elasticity in the Murrumbidgee, Australia," Agricultural Water Management, Elsevier, vol. 239(C).
    8. Emawtee Bissoondoyal-Bheenick & Robert Brooks & Wei Chi & Hung Xuan Do, 2018. "Volatility spillover between the US, Chinese and Australian stock markets," Australian Journal of Management, Australian School of Business, vol. 43(2), pages 263-285, May.
    9. Adam Loch & Christopher Auricht & David Adamson & Luis Mateo, 2021. "Markets, mis‐direction and motives: A factual analysis of hoarding and speculation in southern Murray–Darling Basin water markets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(2), pages 291-317, April.

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