Commodity Futures Contract Viability: A Multidisciplinary Approach

Pennings, Joost M.E.; Leuthold, Raymond M.

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https://hdl.handle.net/2142/4027 Copy

Description

Title

Commodity Futures Contract Viability: A Multidisciplinary Approach

Author(s)

• Pennings, Joost M.E.
• Leuthold, Raymond M.

Issue Date

1999-05

Keyword(s)

• structural equation models
• multiple regression models

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 owner-managers 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.

Publisher

Office for Futures and Options Research, Department of Agricultural Economics, College of Agricultural, Consumer, and Environmental Sciences at the University of Illinois at Urbana-Champaign

Series/Report Name or Number

OFOR Working Paper Series, no. 99-02

Type of Resource

text

Language

en

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http://hdl.handle.net/2142/4027

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