A Time-Varying Error Correction Model of Price Discovery: Implications for Portfolio Construction and Hedging
We propose a model of time-varying price discovery based on a rolling-window error correction framework. We show that price discovery in five commodities is dominated by the spot market, while, in only six commodities, price discovery is dominated by the futures market. We consistently discover th...
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| Format: | Conference or Workshop Item |
| Language: | English |
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Trường Đại học Kinh tế
2020
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| Online Access: | http://repository.vnu.edu.vn/handle/VNU_123/97662 |
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| Institution: | Vietnam National University, Hanoi |
| Language: | English |
| Summary: | We propose a model of time-varying price discovery based on a rolling-window error correction
framework. We show that price discovery in five commodities is dominated by the spot market,
while, in only six commodities, price discovery is dominated by the futures market. We consistently discover that for 14 commodities price discovery is time-varying, which has implications for portfolio construction and hedging. Our findings, therefore, challenge the wellestablished view in commodity markets that it is the futures market which dominates the price
discovery process |
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