Does the design of spot markets matter for the success of futures markets? Evidence from dairy futures

摘要

This study provides evidence of the importance of a well-defined and functioning spot market for the success of the associated futures market. Our analysis of hedging effectiveness and hedge ratio persistence shows that none of the United States (US) spot market indices may be hedged effectively with the Chicago Mercantile Exchange nonfat dry milk futures at short hedging horizons, whereas the New Zealand (NZ) Stock Exchange whole milk powder futures contract is an effective hedge for the Global Dairy Trade spot pricing benchmark. Four important dimensions of spot market design are identifiedtimeliness, market-based measurement, forward-spot separation, and inclusiveness.