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Price Discovery in European Agricultural Markets: When Do Futures Contracts Matter?

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  • Philipp Adämmer
  • Martin T. Bohl

Abstract

The literature on price discovery in agricultural markets is predominantly devoted to North America. This paper extends the analysis to Europe to investigate the influence of futures markets on the pricing process during periods of price turmoil and rising trading activity. By quantifying the contribution of the futures market to price discovery over time, we show that its impact was high during the first period of price spikes (2007 to 2009) but lower during the second one (2010 to 2013). These results are noteworthy as trading volume in futures markets was low during the first period but high during the latter. More liquidity did thus not lead to a higher influence on spot prices. We argue that futures markets especially mattered for price discovery during the period of unanticipated price shocks, namely between 2007 and 2009.

Suggested Citation

  • Philipp Adämmer & Martin T. Bohl, 2015. "Price Discovery in European Agricultural Markets: When Do Futures Contracts Matter?," CQE Working Papers 4415, Center for Quantitative Economics (CQE), University of Muenster.
    • Handle: RePEc:cqe:wpaper:4415
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    File URL: https://www.wiwi.uni-muenster.de/cqe/sites/cqe/files/CQE_Paper/CQE_WP_44_2015.pdf
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    References listed on IDEAS

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    4. Philipp Adämmer & Martin T. Bohl & Christian Gross, 2016. "Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(9), pages 851-869, September.
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    Cited by:

    1. Narjiss Araba & Alain François-Heude, 2019. "Price discovery and volatility spillovers in the French wheat market," Post-Print hal-03088859, HAL.
    2. Yali Mu & Stephan von Cramon‐Taubadel, 2022. "Estimating dynamic market efficiency frontiers," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(3), pages 633-653, September.
    3. Vollmer, T. & Von Cramon-Taubadel, S., 2018. "Dynamic price discovery in the European wheat market based on the concept of partial cointegration," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276031, International Association of Agricultural Economists.

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    More about this item

    Keywords

    Price Discovery; European Agricultural Markets; Common Factor Weights; Time-Varying VECM;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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