This dissertation is comprised of three essays in the areas of commodity markets and financial economics. Commodities play an important role in the production process, as well in risk management and financial strategies of firms and investors.
Further, commodities make up a large part of exports earnings in developing countries and lead the supply side of the market (Cashin, Liang, and Mcdermott, 1999). In industiial countries, commodities lead the demand side as inputs of production, and are believed to have an effect on inflation and business cycle disturbances (Beckerman and Jenkinson, 1986).
Thus far, little research has examined interrelationships that exist between broad measures of the commodity market activity, how these measures respond to macroeconomics events, and the volatility that exists in theses market measures. This dissertation focuses on the time series behavior of the Commodity Research Board's (CRB) spot and futures price indexes two of the most popular broad measures of commodities market activity and thus fills a gap in the existing literature. The study utilizes several recently developed time series econometric techniques that are capable of identifying whether or not there exists a long-run equilibrium relationship between the spot and futures markets. More importantly, it can be determined how and to what extent each market (i.e., spot or futures) adjusts to economic events that temporarily disrupt the equilibrium relationship between the two markets.
The dissertation ties together several existing strands of commodity price studies in three important ways: (I) A long-run linkage between spot and futures markets is shown to exist and the sensitivity of their spread to market disruptions is measured; (2) the response of futures and spot prices to unexpected changes ("news") in macroeconomic variables is quantified; and (3) the out-of-sample forecasting performance of linear and non-linear volatility models of commodity prices is measured and compared. Following is a brief synopsis of each essay.
CONTENTS
ACKNOWLEDGMENTS
LIST OF TABLES
LIST OF FIGURES
CHAPTER
I. INTRODUCTION
II. EXAMINATION OF THE COMMODITY SPOT AND FUTURES AN MARKETS: APPLICATION OF AN ERROR CORRECTION MODEL WITH TIME-VARYING VOLATILITY
Abstract
Introduction
An Overview of Spot and Futures Markets and Related Literature
A Description of the Data
Empirical Methodology and Results
Stationarity, Unit Roots, and Cointegration
Stationarity and Unit Root Tests
A Test for Cointegration
Error Correction Modeling and Time-Varying Volatility
Concluding Remarks
III. AN EMPIRICAL ANALYSIS OF CRB COMMODITY FUTURESSPOT PRICE INDEXES AND MACROECONOMIC ACTIVITY
Abstract
Introduction
Overview ofMacroeconomic Factors and Commodity Prices
Review of the Related Literature
Data
Methodology
Univariate Analysis and Stationarity Tests
Testing for Cointegration in a Multivariate System
VECM and Generalized Impulse Response Analysis
Discussion of Results
Concluding Remarks
IV. FORCASTING COMMODITY PRICE VOLATILITY IN SPOT AND FUTURES MARKETS: A COMPARISON OF LINEAR VERSUSNONLINEAR GARCH MODEL
Abstract
Introduction
Review of the Related Literature
Data
Methodology
Basic Model
GARCH Models
Discussion of Results
Within-Sample Estimation
Out-of-Sample Forecasting
Concluding Remarks
LIST OF REFERENCES
APPENDIX
A. DESCRIPTION OF THE CRB FUTURES AND SPOT PRICE INDEXES
B. CHAPTER II DATA
C. CHAPTER III DATA
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