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Arbitrage, cointegration, and the joint dynamics of prices across discrete commodity futures auctions

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  • Aaron H. W. Low
  • Jayaram Muthuswamy
  • Robert I. Webb

Abstract

Underlying the search for arbitrage opportunities across commodity futures markets that differ in market structure is the idea that the futures prices for similar commodities that are traded on different exchanges adjusted for differences in currency, delivery time (if any), location, and market structure are equal. This article examines price linkages in competing discrete commodity futures auction markets. We find no evidence of cointegration of futures prices of similar commodities traded on two contemporaneous discrete auction futures exchanges in Asia. We also find no evidence of arbitrage activities across these two Asian exchanges, though this does not preclude arbitrage activities with North American continuous auction markets. This lack of cointegration may be due to nonstationarities in the trading cost component. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 799–815, 1999

Suggested Citation

  • Aaron H. W. Low & Jayaram Muthuswamy & Robert I. Webb, 1999. "Arbitrage, cointegration, and the joint dynamics of prices across discrete commodity futures auctions," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(7), pages 799-815, October.
    • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:7:p:799-815
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