This thesis examines the relationship between spot prices, futures prices, and ending stocks for storable commodities. We used Granger causality and DAGs to determine causal relationships and cointegration tests to determine long-run relationships. We use VAR/VECM and consider innovation accounting techniques to see how volatility in one market affects the price behavior and volatility in the other market. Results suggest that for agricultural commodities, innovations in futures price permanently increase the level of spot prices while accounting for much of spot price variance over time. For national oil, shocks to futures price decrease the level of spot price in the long run. In regional oil markets, there are transitory impulse responses. Futures price plays a small role in the volatility of spot prices for oil over time. Overall results are mixed, with oil suggesting futures markets may have a price stabilizing effect and agriculture commodities indicating spot price destabilization.

This thesis examines the dependence structures between commodity futures and corresponding commodity producer equity indices in bearish, bullish and normal market conditions. We study commodity futures and producer indices in the energy, precious metals, gold and agriculture commodity markets using daily return data that ranges from 16 December 2005 to 28 June 2019. We employ the cross-quantilogram approach developed by Han et al. (2016) to examine dependence structures in the full quantile range, which represents different market states. Furthermore, we control for different lag structures, uncertainties and time-varying dependence structures. From our results we conclude the following: 1) There are time-varying asymmetric and symmetric dependencies in different commodity markets. There is asymmetric dependence between commodity futures and producer indices in the precious metals, gold and agricultural markets. In the oil market, the relationship is symmetrical. No relationship is found in the natural gas market. 2) Heterogenous dependence structures are identified in the gold, precious metals and agricultural commodity markets. The oil market uncovers homogenous dependence structures. 3) The observed spillover in all markets occur in the very short run, at one day, and dissipates after a week and additionally after a month. Our results provide new information regarding commodity diversification attributes which can be useful to investors. Our results also provide important policy implications: Since volatility spillovers between commodity futures and producer indices may deter investors from including commodities in their portfolios, as they might lose their diversifier qualities, it is important to enforce policies that will prevent the spillovers between the assets. Further, regulations of the commodity futures markets could be an alternative to reduce the spillovers.

No description available.

Relationships between the futures price, cash price, and U.S. Feeder Steer Price in the final eight weeks of trading on the feeder cattle futures contract were analyzed. Models were developed to examine continued problems with basis variability in the feeder cattle futures contract. The results of these models indicated that the change from physical delivery to cash settlement and the use of the U.S. Feeder Steer Price as a settlement index for the contract did not improve problems associated with basis variability. / Master of Science

The following dissertation contains two distinct empirical essays which contribute to the overall field of Financial Economics. Chapter 1, entitled “The Determinants of Dynamic Dependence: An Analysis of Commodity Futures and Equity Markets,” examines the determinants of the dynamic equity-commodity return correlations between five commodity futures sub-sectors (energy, foods and fibers, grains and oilseeds, livestock, and precious metals) and a value-weighted equity market index (S&P 500). The study utilizes the traditional DCC model, as well as three time-varying copulas: (i) the normal copula, (ii) the student’s t copula, and (iii) the rotated-gumbel copula as dependence measures. Subsequently, the determinants of these various dependence measures are explored by analyzing several macroeconomic, financial, and speculation variables over different sample periods. Results indicate that the dynamic equity-commodity correlations for the energy, grains and oilseeds, precious metals, and to a lesser extent the foods and fibers, sub-sectors have become increasingly explainable by broad macroeconomic and financial market indicators, particularly after May 2003. Furthermore, these variables exhibit heterogeneous effects in terms of both magnitude and sign on each sub-sectors’ equity-commodity correlation structure. Interestingly, the effects of increased financial market speculation are found to be extremely varied among the five sub-sectors. These results have important implications for portfolio selection, price formation, and risk management. Chapter 2, entitled, “US Community Bank Failure: An Empirical Investigation,” examines the declining, but still pivotal role, of the US community banking industry. The study utilizes survival analysis to determine which accounting and macroeconomic variables help to predict community bank failure. Federal Deposit Insurance Corporation and Federal Reserve Bank data are utilized to compare 452 community banks which failed between 2000 and 2013, relative to a sample of surviving community banks. Empirical results indicate that smaller banks are less likely to fail than their larger community bank counterparts. Additionally, several unique bank-specific indicators of failure emerge which relate to asset quality and liquidity, as well as earnings ratios. Moreover, results show that the use of the macroeconomic indicator of liquidity, the TED spread, provides a substantial improvement in modeling predictive community bank failure.

Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Management Graduate School of Business Administration University of the Witwatersrand April 2016 / This thesis examined commodity futures on the South African Futures Exchange (SAFEX) from two angles; the investors’ perspective and that of the futures exchange. For the former, the research looked at market inefficiencies and resultant arbitrage opportunities while for the latter, extraordinary market movements are examined by exploring how extreme value analysis (EVA) is ideal for exchange risk management and maintaining market integrity. This broadly leads to four empirical contributions to the literature on commodity futures. Using a variety of time series models, wheat contract anomalies are identified by developing new trading rules whose outcomes are superior to any approach based on chance. Monte Carlo simulation employed in an out-of-sample period after accounting for transaction costs establishes that the trading rules are financially profitable. An examination of information flows across four major markets indicated that the Zhengzhou Commodity Exchange (ZCE) is the most endogenous market, Euronext and the London International Financial Futures Exchange (LIFFE) the most exogenous, while Kansas City Board of Trade (KCBT) is the most influential and sensitive wheat market. SAFEX is a significant receiver of information but does not impact the other markets. Another contribution, analysing maturity effects by incorporating traded volume, change in open interest, and the bid-ask spread while accounting for multicollinearity and seasonality indicates that only wheat supports the so called maturity effect. Lastly, asymmetry is found in long and short positions in SAFEX contracts, and using extreme value theory (EVT) in margin optimization, evidence is found that price limits significantly impact large contract returns. Several implications arise from these results. SAFEX wheat contract inefficiencies could be attractive to speculators. Wheat margins should be higher nearer maturity. Optimizing margins using EVT could reduce trading costs, increase market attractiveness and liquidity while enhancing price discovery. South Africa should increase wheat production since reducing imports will lower vulnerability to adverse price transmission. JEL Classification: C13, C14, C58, G01, G13, G17 Keywords: Futures market; commodities; volatility; seasonality; information flows, margins / MB2016

This study employs a quantitative approach to investigate the momentum phenomenon in the commodity futures market. The study captures the phenomenon using two momentum indicators, namely, MACD and RSI, and extends the scope of indicator utilization to both joint and single usage. The research aims to explore whether portfolios consisting of these indicators can generate abnormal returns in the commodity futures market, in comparison to the S&P GSCI, which was used as the benchmark index. The study uses accumulated data from 2010 to 2019, with portfolios constructed on a quarterly basis. Statistical significance determination is executed by exporting the data to Stata, where the normality distribution is ascertained using the Shapiro-Wilk test. This was later followed by t-tests in order to dictate statistical significance on each portfolio compared to the S&P GSCI. The study reveals empirical evidence to support two of the three strategies, namely, the joint use of the aforementioned momentum indicators and single use of the RSI momentum indicator. However, the accumulated yield of the portfolio provided insufficient results to conclude the statistical significance of the single use of the MACD momentum indicator. The authors derive these results and observed phenomena from several financial theories, which are divided into three main sections in the theoretical framework, including information-based, risk-based, and behavior-based explanations. Relevant theories are included to support the research at hand. Furthermore, the authors incorporate the Efficient Market Hypothesis (EMH) under the pretense of challenging its view on efficient markets. They do so by constructing portfolios which yield abnormal returns and subsequently question the notion of efficient markets. The authors deduct that their findings produce some evidence to support the absence of strong form and semi-strong form of market efficiency in the commodity futures market. Overall, this study provides valuable insights into the momentum phenomenon in the commodity futures market and different incorporating investment techniques in which they are utilized. The ways in which momentum strategies can be utilized and momentum indicators interpreted, as displayed in this thesis, presents practical implications for investors and financial professionals.

The purpose of this thesis is to analyze investment options into wheat, corn and rice futures throughout different time horizons. Mostly we use daily closing prices for the last fifteen years. General knowledge of the field in context of nowadays is required to perform such an analysis. To achieve our goals we use technical analysis, time series analysis and we discuss the fundaments of price movements. Contribution of this thesis can be summed as presenting the basic tools of technical analysis in real world, presenting the fundamentals of price movements in one place and practical application of time series analysis on futures prices. By doing so we can confirm that random walk thesis is not unsubstantial but cannot be generalized for all instruments and periods of capital market.

This dissertation aims to study the behavior of intermediaries under market imperfections and the consequences of that for the financial market's functioning. To do so, I focus on two classes of market frictions: funding constraints and information asymmetry. Chapter 1 studies how the dealers' capital constraints affect the market liquidity in the presence of imperfect competition and how recent regulations have shifted the competitive landscape of interest rate swaps. On the subject of informational frictions, Chapters 2 and 3 study empirically and theoretically the pace at which prices incorporate private information under the limited learning capacity of the informed traders. Understanding the microstructure of the swap markets is of interest to both policymakers and academics, especially for it helps in the efficient implementation of post-crisis regulations, namely the Dodd-Frank Act. An understudied dimension of the swap market microstructure is the determinants of the cost of the market-making activity. Using a proprietary regulatory dataset collected by the Commodity Futures Trading Commission (CFTC) on both the interest rate swap transactions and the collateral requirements at the London Clearinghouse (LCH), in Chapter 1, I study the key balance sheet constraints that affect the ability of the bank-affiliated dealers to provide intermediation service to the end-users. Most of the interest rate swaps are now mandated to be centrally cleared. This has increased the dealer's need for collateral in the form of highly liquid assets (cash and cash equivalents) to back their swap exposures. Facing capital adequacy measures such as Supplementary Leverage Ratio (SLR), dealers find it even costlier to increase the size of their balance sheet to fund these margins. I show that a 1-percentage point increase in SLR leads to an increase of 1.09 percentage points in the bank's cost of capital per unit of margin requirement. Furthermore, I find the funding spread of the dealers (the difference between the cost of external funding and the risk-free rate) is also a relevant factor for determining the dealer's marginal cost of swap transaction; a cost that is evidently transferred to the end-users in the form of less favorable prices. Measuring the cost of intermediation for the dealer-to-client interest rate swap market is challenging because of the high concentration in the market-- the first seven dealers intermediate more than 50% of the total notional traded. Therefore, one must consider the nontrivial effect of markups in transaction prices to estimate the marginal cost of intermediation reliably. For this reason, I model a differentiated product demand for swaps in the spirit of empirical Industrial Organization (IO) literature and structurally estimate this model to account for the markups in the transaction prices using estimated price elasticities. The demand estimations show economically interpretable heterogeneity among the end-users in their taste for duration risk hedging. The structurally estimated equilibrium model of intermediation can serve as a basis for answering counterfactual policy questions, especially in the debate on the social costs and benefits of excluding initial margins in calculating supplementary leverage ratio. In Chapter 2, I turn the focus to the impact of informational frictions on market-making activity. More specifically, we study the informed trading under random stopping time. Empirical evidence is provided based on an episode of time when the Securities and Exchange Commission (SEC) unintentionally disclosed security filings to some investors before the public for several years. For technological reasons, the delay between the private and public disclosure was exogenously random. We exploit the variation in the time window of private information to show the intensity of trades and the speed at which market prices reach their efficiency, decrease with the expected arrival time of public announcement. In addition, we find the learning capacity of the insider determines the evolution of trading intensity over time. In Chapter 3, inspired by the stylized facts observed in the earlier chapter, I extend the Kyle (1985) model of strategic trading to a case with limited learning capacity of both the dealers and the informed traders (insiders). The insider does not perfectly observe the true value of the security, but he continues to hone his knowledge by using private information sources over time. Two classes of equilibria emerge from this model. In one class, the insider trades excessively patiently, and the market efficiency is reached only asymptotically. In the second type, the insider optimally chooses a deterministic time T, before which he trades patiently as in Kyle (1985) until the price reaches its full efficiency. After T, the insider keeps revealing every piece of new information immediately, and the market price stays efficient while the insider keeps making profits. Which equilibrium emerges depends on the insider's learning capacity, initial informational advantage, and the private source's informational content.

Agriculture is of inestimable value to South Africa because it is a major source of job creation and plays a key role in earning foreign exchange. The most significant contribution of agriculture, and in particular maize, is its ability to provide food for the nation. For a number of decades government legislation determined prices, and as such the trade of grains on the futures exchange requires market participants to adapt to a volatile environment. The research focuses on the ability of market participants to effectively mitigate price volatility on the futures exchange through the use of derivative instruments, and the possibility of developing risk management strategies that will outperform the return offered by the market. The study shows that market participants are unable to use derivative instruments in such a way that price volatility is minimised. The findings of the study also indicate that the development of derivative risk management strategies could result in better returns than those offered by the market, mainly by exploiting trends on the futures market. / Financial Accounting / M. Comm. (Business Management)