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Commodity Futures Contract Viability: A Multidisciplinary Approach
BibTeX
@MISC{Pennings_commodityfutures,
author = {Joost M. E. Pennings and Raymond M. Leuthold},
title = {Commodity Futures Contract Viability: A Multidisciplinary Approach},
year = {}
}
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Abstract
We propose a development process of commodity futures contracts in which the decisions and wishes of potential customers are investigated simultaneously with the necessary technical properties that need to be met for trading to take place. Within this framework the relationship between trading volume and hedging effectiveness is examined taking both basis risk and market depth risk into account, and the relationship between owner-manager’s characteristics and the probability of using futures is examined, taking latent variables and the heterogeneity of owner-managers into account. The relationships are tested on a set of data gathered in a stratified sample of 440 ownermanagers by means of computer-assisted personal interviews and on transaction-specific futures data. Structural equation models and multiple regression models are used to validate the relationships. The hedging effectiveness and the variables that play a role in the owner-manager’s use of futures are related to the tools of the exchange.
Keyphrases
multidisciplinary approach commodity future contract viability multiple regression model transaction-specific future data owner-manager use stratified sample necessary technical property structural equation model latent variable basis risk hedging effectiveness owner-manager characteristic trading volume market depth risk development process potential customer computer-assisted personal interview commodity future contract
