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van Huellen, Sophie (2013) Price Non-Convergence in Commodities: A Case Study of the Wheat Conundrum. SOAS Department of Economics Working Paper Series (185) pp. 1-31. London:

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Abstract

The close relationship between commodity future and cash prices is critical for the effectiveness of risk management and the functioning of price discovery. However, in recent years, commodity futures prices, across the board, have appeared increasingly detached from prices on physical markets. This paper argues that while various factors, identified in previous literature, which introduced limits to arbitrage have facilitated non-convergence, the actual extent of non-convergence in these markets is caused by essential differences in the mechanisms of price formation on physical and derivative markets. With reference to the particular case of the CBOT wheat market, the paper shows that the size of the spread between futures and cash prices can be theoretically and empirically linked to the increasing inflow of financial investment into commodity futures markets.

Item Type: Monographs and Working Papers (Working Paper)
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Legacy Departments > Faculty of Law and Social Sciences > Department of Economics
ISSN: 17535816
Date Deposited: 11 Oct 2015 12:12
URI: http://eprints.soas.ac.uk/id/eprint/20970

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