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Measuring price discovery in the European wheat market using the partial cointegration approach

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  • Teresa Vollmer
  • Helmut Herwartz
  • Stephan von Cramon-Taubadel

Abstract

Understanding price discovery in agricultural spot and futures markets is important for market participants and policy makers, because it can contribute to better management decisions and more informed policy debates on market regulation. Combining partial cointegration with state space modelling, we generate time-varying price discovery metrics for the European wheat market that allow for shifts in the long-run relationship. We find that the futures market dominates price discovery in terms of efficiency, but that this dominance is reduced in phases of higher price volatility. We find evidence of persistent shocks in the long-run relationship between spot and futures prices that appear to be related to variations in the quality of the wheat harvest, and to the concatenation of the futures prices.

Suggested Citation

  • Teresa Vollmer & Helmut Herwartz & Stephan von Cramon-Taubadel, 2020. "Measuring price discovery in the European wheat market using the partial cointegration approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(3), pages 1173-1200.
    • Handle: RePEc:oup:erevae:v:47:y:2020:i:3:p:1173-1200.
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    2. Heigermoser, Maximilian, 2023. "The rapid rise of Russia's wheat exports: Price formation, spot-futures relations and volatility effects," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 100, number 100.
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    8. Zhuo Chen & Bo Yan & Hanwen Kang & Liyu Liu, 2023. "Asymmetric price adjustment and price discovery in spot and futures markets of agricultural commodities," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 139-162, February.
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