Measuring price discovery between nearby and deferred contracts in storable and nonstorable commodity futures markets

摘要

Futures market contracts with varying maturities are traded concurrently andthe speed at which they process information is of value in understanding thepricing discovery process. Using price discovery measures, including Putnins(2013) information leadership share and intraday data, we quantify theproportional contribution of price discovery between nearby and deferredcontracts in the corn and live cattle futures markets. Price discovery is moresystematic in the corn than in the live cattle market. On average, nearbycontracts lead all deferred contracts in price discovery in the corn market,but have a relatively less dominant role in the live cattle market. In bothmarkets, the nearby contract loses dominance when its relative volume sharedips below 50%, which occurs about 2-3 weeks before expiration in corn and 5-6weeks before expiration in live cattle. Regression results indicate that theshare of price discovery is most closely linked to trading volume but is alsoaffected, to far less degree, by time to expiration, backwardation, USDAannouncements and market crashes. The effects of these other factors varybetween the markets which likely reflect the difference in storability as wellas other market-related characteristics.