The purpose of this research was to quantify the relative contribution of various types of traders on the price discovery process in live cattle futures. This work was based on a conceptual model where traders select the information deemed most relevant for forecasting future prices and then make use of a translating mechanism to condense this information into a price expectation. A trader's price expectation taken along with his/her willingness to act on that expectation results in a trading behavior. It is the interaction between the behaviors of all traders that determines price.
A quantitative measure of the pressure exerted on price by six distinct groups of traders was developed from daily data on reporting traders in live cattle at the Chicago Mercantile Exchange. Interrelationships between the price pressures were examined with statistical techniques. The mean squared error (MSE) of a futures price series was used to measure the price discovery performance of the market. Quadratic programming models were constructed to minimize the MSE of a simulated price series produced by allowing changes in the price pressure of each of the six trader groups. Shadow prices from the programming models were used to indicate the relative contributions of each group to price discovery.
Results indicated that, on average from 1983 to 1987, large commercial traders and a group composed of commodity pool operators and program traders were the most harmful to price discovery. The behavior of small traders did the most to improve price discovery, on average. Medium-sized commercial traders improved price discovery. In the delivery period, actions of large commercial traders were the most beneficial to price discovery. The results did not, however, reveal a consistent pattern of influence by any trader group.
These results suggest that traders who are more likely to focus on forming short term price expectations are less beneficial to price discovery than those that rely on long term price expectations. Also, since no trader group consistently outperformed the others with respect to price discovery, these findings suggest that consistent price discovery gains through policy manipulation of trader mix would be difficult to achieve. / Ph. D.
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/37974 |
| Date | 06 June 2008 |
| Creators | Murphy, Robert David |
| Contributors | Agricultural and Applied Economics, Kenyon, David E., Peterson, Everett B., Chance, Donald M., Purcell, Wayne D., McGuirk, Anya M. |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Language | English |
| Detected Language | English |
| Type | Dissertation, Text |
| Format | xix, 313 leaves, BTD, application/pdf, application/pdf |
| Rights | In Copyright, http://rightsstatements.org/vocab/InC/1.0/ |
| Relation | OCLC# 32878265, LD5655.V856_1995.M876.pdf |
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