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Price Volatility (price + volatility)
Kinds of Price Volatility Selected AbstractsSTOCK PRICE VOLATILITY, NEGATIVE AUTOCORRELATION AND THE CONSUMPTION,WEALTH RATIO: THE CASE OF CONSTANT FUNDAMENTALSPACIFIC ECONOMIC REVIEW, Issue 2 2010Charles Ka Yui Leung Based on infinite horizon models, previous theoretical works show that the empirical stock price movement is not justified by the changes in dividends. The present paper provides a simple overlapping generations model with constant fundamentals in which the stock price displays volatility and negative autocorrelation even without changes in dividend. The horizon of the agents matters. In addition, as in recent empirical works, the aggregate consumption,wealth ratio ,predicts' the asset return. Thus, this framework may be useful in understanding different stylized facts in asset pricing. Directions for future research are also discussed. [source] The Impact of Foreign Equity Ownership on Emerging Market Share Price VolatilityINTERNATIONAL FINANCE, Issue 1 2000Mark Coppejans We ask whether foreign equity ownership affects the stability of share prices in an emerging economy. We address the effect of ownership restrictions exogenously imposed on stock ownership and the impact of introducing or widening foreign ownership through cross-listing. A methodology for variance ratio analysis is introduced that corrects for liquidity and volume differences across stock series experiencing different degrees of foreign ownership. We find that foreign ownership does not affect volatility in the absence of cross-listing. Foreign ownership introduced or accompanied by cross-listing of a stock series raises the variance of returns. This effect is found to operate in part through increases in volume traded on the domestic market following the listing, and through an identifiable increase in the volatility of information net of volume effects. [source] Modelling Regime-Specific Stock Price Volatility,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 6 2009Carol Alexander Abstract Single-state generalized autoregressive conditional heteroscedasticity (GARCH) models identify only one mechanism governing the response of volatility to market shocks, and the conditional higher moments are constant, unless modelled explicitly. So they neither capture state-dependent behaviour of volatility nor explain why the equity index skew persists into long-dated options. Markov switching (MS) GARCH models specify several volatility states with endogenous conditional skewness and kurtosis; of these the simplest to estimate is normal mixture (NM) GARCH, which has constant state probabilities. We introduce a state-dependent leverage effect to NM-GARCH and thereby explain the observed characteristics of equity index returns and implied volatility skews, without resorting to time-varying volatility risk premia. An empirical study on European equity indices identifies two-state asymmetric NM-GARCH as the best fit of the 15 models considered. During stable markets volatility behaviour is broadly similar across all indices, but the crash probability and the behaviour of returns and volatility during a crash depends on the index. The volatility mean-reversion and leverage effects during crash markets are quite different from those in the stable regime. [source] Trading Activity and Price Volatility in the Municipal Bond MarketTHE JOURNAL OF FINANCE, Issue 2 2004Chris Downing ABSTRACT Utilizing a comprehensive database of transactions in municipal bonds, we investigate the volume,volatility relation in the municipal bond market. We find a positive relation between the number of transactions and a bond's price volatility. In contrast to previous studies, we find a negative relation between average deal size and price volatility. These results are found to be robust throughout the sample. Our results are inconsistent with current theoretical models of the volume,volatility relation. These inconsistencies may arise because current models fail to account for the effects of overall market liquidity on the costs of large transactions. [source] Fractional integration in agricultural futures price volatilities revisitedAGRICULTURAL ECONOMICS, Issue 1 2009Peter S. Sephton Conditional volatility; Fractional integration; Long-memory Abstract Jin and Frechette (2004) examined the degree to which agricultural price volatilities exhibited evidence of fractional integration and concluded it was important to consider both long-run and short-run memory when modeling conditional variances. The purpose of this note is to revisit the issue using new methods and techniques which generally reaffirm the view that return volatilities are fractionally integrated and conditionally heteroskedastic, with many exhibiting significant leverage effects, a result not previously reported. [source] Developing Countries' Position in WTO Agricultural Trade NegotiationsDEVELOPMENT POLICY REVIEW, Issue 1 2002Alan Matthews Four themes in the developing countries' position are highlighted. (i) They are seeking meaningful improvements in market access for their agricultural exports. (ii) They have highlighted the asymmetry of current WTO obligations under the Uruguay Round Agreement on Agriculture, and are seeking greater equality of outcomes in the new round. (iii) Meaningful concessions on special and differential treatment will be necessary to satisfy the interests of both exporters and importers, especially on the scope to be allowed for tariff protection to domestic food production. (iv) Innovative and reliable guarantees will need to be provided to the least developed food importers to protect them against the risk of world price volatility. [source] PROMOTING INNOVATION IN THE ELECTRICITY INDUSTRYECONOMIC AFFAIRS, Issue 2 2010L. Lynne Kiesling Smart metering can bring significant benefits to electricity markets by allowing customers to reduce demand or increase supply when generation capacity is temporarily scarce. To reap the full efficiency and environmental benefits of this technology, regulators must allow price volatility and free entry into the market. The efficiency gains are enormous as both demand and supply will be affected by both temporary and longer-lasting price changes. Experiments have shown the value of this approach. [source] Investment and Uncertainty: Precipitating the Great Depression in the United StatesECONOMICA, Issue 291 2006DAVID GREASLEY A severe collapse of fixed capital formation distinguished the onset of the Great Depression from other investment downturns between the world wars. Using a model estimated for the years 1890,2000, we show that the expected profitability of capital measured by Tobin's q, and the uncertainty surrounding expected profits indicated by share price volatility, were the chief influences on investment levels, and that heightened share price volatility played the dominant role in the crucial investment collapse in 1930. Investment did not simply follow the downward course of income at the onset of the depression: rather, its slump helped to propel the wider collapse. [source] The Asset Pricing Palette: Cash Flows, Returns and Trading BehaviorFINANCIAL REVIEW, Issue 4 2001Andrea J. Heuson G12 Abstract Asset pricing is the topic of the 2001 Eastern Finance Association Symposium and the five papers selected for this collection, which are summarized below, span a broad range of subjects that fall under the umbrella of the determinants of market prices. For example, the Schwartz and Moon article that introduces the symposium uses real options methodology to value firms whose cash flows are subject to multiple sources of uncertainty while the Luders and Peisl and Mixon analytical models that close the selections incorporate dual stochastic processes to derive relationships between information flow, trading volume and price volatility that are consistent with empirical evidence. In between, Mishra and O'Brien present new evidence on the important of index and factor selection when estimating the required return on equity and Spahr and Schwebach revisit the issue of time diversification by reintroducing a statistical construct from earlier times. Each of the works included here makes an important contribution to our understanding of the asset pricing process in a distinct area and opens new doors onto avenues for future research. [source] The impact of lunchtime closure on market behaviour: evidence from the Sydney Futures ExchangeACCOUNTING & FINANCE, Issue 1-2 2001Alex Frino This paper examines the impact of lunchtime closure on market behaviour. Between May and September, 1994 the Sydney Futures Exchange trialed lunchtime trading. The trial provides a unique natural laboratory experiment for examining the impact of lunchtime closure. The analysis reported in this paper documents abnormally high bid ask spreads, price volatility and trading volume on re-opening of the market following lunchtime closure. These results confirm that closure has an impact on trading activity, and are consistent with the effects of strategic informed trading, a loss in price discovery and/or trading associated with risk transfer. An abnormal increase in trading volume prior to lunchtime closure is also documented, providing unambiguous evidence of trading activity motivated by risk transfer. Overall these results imply that lunchtime closure disrupts trading activity and reduces market quality by imposing additional costs on market participants. [source] What Can Account for Fluctuations in the Terms of Trade?,INTERNATIONAL FINANCE, Issue 1 2006Marianne Baxter This paper studies the sources of terms of trade volatility. We decompose the terms of trade into two components. The ,goods price' component stems from differences in the composition of import and export baskets, while the ,country price' component stems from deviations from the law of one price. Countries are classified according to their major import and export goods: commodities, manufactured goods and fuels. Except fuel exporters, there is roughly equal importance of goods price vs country price volatility. These results suggest that there may be a role for reducing terms of trade volatility through diversification of a country's exports. [source] A Re-examination of Disclosure Level and the Expected Cost of Equity CapitalJOURNAL OF ACCOUNTING RESEARCH, Issue 1 2002Christine A. Botosan This paper examines the association between the cost of equity capital and levels of annual report and timely disclosure, and investor relations activities. We estimate the cost of equity capital using the classic dividend discount model. We find that the cost of equity capital decreases in the annual report disclosure level but increases in the level of timely disclosures. The latter result is contrary to theory but is consistent with managers' claims that greater timely disclosures may increase the cost of equity capital, possibly through increased stock price volatility. We find no association between the cost of equity capital and the level of investor relations activities. We conclude that aggregating across different disclosure types results in a loss of information. Failing to include all disclosure types in regression analyses may lead to a correlated omitted variable bias and erroneous conclusions. [source] Impacts of Market Reform on Spatial Volatility of Maize Prices in TanzaniaJOURNAL OF AGRICULTURAL ECONOMICS, Issue 2 2008Fredy T. M. Kilima C33; D40; O12; O55 Abstract Maize is one of the major staples and cash crops for many Tanzanians. Excessive volatility of maize prices destabilises farm income in maize-growing regions and is likely to jeopardise nutrition and investment in many poor rural communities. This study investigates whether market reform policies in Tanzania have increased the volatility of maize prices, and identifies regional characteristics that can be attributed to the spatial price volatility. To achieve the objectives, an autoregressive conditional heteroskedasticity in mean (ARCH-M) model is developed and estimated in this study. Results show that the reforms have increased farm-gate prices and overall price volatility. Maize prices are lower in surplus and less developed regions than those in deficit and developed regions. Results also show that the developed and maize-deficit regions, and regions bordering other countries have experienced less volatile prices than less developed, maize-surplus and non-bordering regions. Our findings indicate that investments in communication and transportation infrastructures from government and donor countries are likely to increase inter-regional and international trade, thereby reducing the spatial price volatility in Tanzanian maize prices in the long run. [source] Did Futures Markets Stabilise US Grain Prices?JOURNAL OF AGRICULTURAL ECONOMICS, Issue 1 2002Joseph Santos Though economists are divided over whether, in practice, futures markets reduce spot price volatility, observers of nascent nineteenth century US futures markets essentially praised the stabilising effects of this financial innovation. Indeed, such praise is understandable, particularly if, as the Chicago Board of Trade (CBOT) and others assert, "violent" spot price fluctuations were common prior to, but not after, the 1870s; the same decade that grain trade historians typically associate with the birth of the modern futures contract. And whereas these events may be unrelated, the claim is intriguing because it requires that nineteenth century futures prices fulfil their price discovery function, a property that many modern futures markets do not possess. This paper explores what role, if any, the advent of futures trading may have had on spot price volatility. I corroborate the CBOT's assertion regarding diminished spot price volatility around the 1870s and show that early futures prices did indeed fulfil their price discovery function. Moreover, I address two alternative hypotheses that relate the decline in spot price volatility to the Civil War. Ultimately, I maintain that the evolution of futures markets is the principal proximate reason why commodity spot price volatility diminished. [source] Identifying and Attracting the "right" Investors: Evidence on the Behavior of Institutional InvestorsJOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2004Brian Bushee This article summarizes the findings of research the author has conducted over the past seven years that aims to answer a number of questions about institutional investors: Are there significant differences among institutional investors in time horizon and other trading practices that would enable such investors to be classified into types on the basis of their observable behavior? Assuming the answer to the first is yes, do corporate managers respond differently to the pressures created by different types of investors, and, by implication, are certain kinds of investors more desirable from corporate management's point of view? What kinds of companies tend to attract each type of investor, and how does a company's disclosure policy affect that process? The author's approach identifies three categories of institutional investors: (1) "transient" institutions, which exhibit high portfolio turnover and own small stakes in portfolio companies; (2) "dedicated" holders, which provide stable ownership and take large positions in individual firms; and (3) "quasi-indexers," which also trade infrequently but own small stakes (similar to an index strategy). As might be expected, the disproportionate presence of transient institutions in a company's investor base appears to intensify pressure for short-term performance while also resulting in excess volatility in the stock price. Also not surprising, transient investors are attracted to companies with investor relations activities geared toward forward-looking information and "news events," like management earnings forecasts, that constitute trading opportunities for such investors. By contrast, quasi-indexers and dedicated institutions are largely insensitive to shortterm performance and their presence is associated with lower stock price volatility. The research also suggests that companies that focus their disclosure activities on historical information as opposed to earnings forecasts tend to attract quasi-indexers instead of transient investors. In sum, the author's research suggests that changes in disclosure practices have the potential to shift the composition of a firm's investor base away from transient investors and toward more patient capital. By removing some of the external pressures for short-term performance, such a shift could encourage managers to establish a culture based on long-run value maximization. [source] Is stabilization of potato price effective?AGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 2 2010Empirical evidence from the Idaho Russet Burbank potato market High fresh potato price volatility, decreasing demand for fresh potatoes, and potato prices below the cost of production led to a decision of a group of Idaho potato growers to organize the United Potato Growers of Idaho, a marketing cooperative. The potato supply management program was developed to coordinate production and marketing of fresh potatoes. To evaluate the effectiveness of this program, the authors examine the level and volatility of Idaho Russet Burbank weekly shipping point prices during two periods: before the cooperative was organized and when the cooperative was in the market. They found empirical evidence suggesting that the analyzed prices were higher and less volatile during the period when the cooperative was in the market. © 2010 Wiley Periodicals, Inc. [source] Supply response and price volatility in the Greek broiler marketAGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 1 2010Anthony N. Rezitis The authors examine the supply response of the Greek broiler market. A generalized autoregressive conditional heteroskedasticity (GARCH) process is used to estimate expected price and price volatility; price and supply equations are estimated jointly. In addition to the standard GARCH model, several different symmetric, asymmetric, and nonlinear GARCH models are estimated. These models use different conditional variance specifications (linear or nonlinear) to grasp some additional empirical regularity of data like asymmetry. Asymmetric price volatility means that different volatility is recorded in the case of a fall in prices than an increase in prices by the same amount. The possible existence of asymmetry in the producer's price volatility gives useful information about market structure and possible market power. The empirical results indicate that among the estimated GARCH models the nonlinear asymmetric GARCH model (NAGARCH) seems to better describe producers' price volatility of the Greek broiler industry. Furthermore, the empirical findings show that price volatility is an important risk factor and broiler feed price is the most significant cost factor of the supply response function. Finally, the model provides forecasts for quantity supplied, producers' price, and price volatility. [EconLit. Classifications: Q110, C510, D200]. © 2010 Wiley Periodicals, Inc. [source] Productivity in Malagasy rice systems: wealth-differentiated constraints and prioritiesAGRICULTURAL ECONOMICS, Issue 2007Bart Minten rice productivity; poverty; technology adoption; Madagascar Abstract This study explores the constraints on agricultural productivity and priorities in boosting productivity in rice, the main staple in Madagascar, using a range of different data sets and analytical methods, integrating qualitative assessments by farmers and quantitative evidence from panel data production function analysis and willingness-to-pay estimates for chemical fertilizer. Nationwide, farmers seek primarily labor productivity enhancing interventions, e.g., improved access to agricultural equipment, cattle, and irrigation. Shock mitigation measures, land productivity increasing technologies, and improved land tenure are reported to be much less important. Research and interventions aimed at reducing costs and price volatility within the fertilizer supply chain might help at least the more accessible regions to more readily adopt chemical fertilizer. [source] INVESTMENT RISK AND THE TRANSITION INTO HOMEOWNERSHIP,JOURNAL OF REGIONAL SCIENCE, Issue 2 2007Tracy M. Turner R0; D12; D84 ABSTRACT This paper investigates the extent to which house,price uncertainty affects the transition of renter households into homeownership. Using a 14-year household panel from the Panel Study of Income Dynamics during the years 1984,1997 and measures of the time-varying risk and return to owner-occupied housing, we estimate a Cox proportional hazard model of the effect of house,price volatility on the transition into homeownership. Results indicate that house,price uncertainty has a negative and dramatic impact on transitions into homeownership. In addition, we find that the low-wealth renters are particularly sensitive to house,price risk. [source] US braces itself for gasoline and diesel shortagesOIL AND ENERGY TRENDS, Issue 3 2006Article first published online: 9 MAR 200 New fuel regulations that are progressively being introduced in the US from the beginning of this year are likely to lead to radical changes in the gasoline and diesel fuel markets. The main change for gasoline is the replacement of methyl tertiary butyl ether (MTBE) by ethanol, whilst for diesel the principal development is the reduction in the permitted sulphur content. A shortage of the new fuels could increase price volatility and drive up prices. This is not a pleasant prospect for the White House, already under criticism for another energy plan: to cut imports of crude oil from the Middle East. [source] Do Stock Prices and Volatility Jump?THE JOURNAL OF FINANCE, Issue 3 2004Option Prices, Reconciling Evidence from Spot This paper examines the empirical performance of jump diffusion models of stock price dynamics from joint options and stock markets data. The paper introduces a model with discontinuous correlated jumps in stock prices and stock price volatility, and with state-dependent arrival intensity. We discuss how to perform likelihood-based inference based upon joint options/returns data and present estimates of risk premiums for jump and volatility risks. The paper finds that while complex jump specifications add little explanatory power in fitting options data, these models fare better in fitting options and returns data simultaneously. [source] Trading Activity and Price Volatility in the Municipal Bond MarketTHE JOURNAL OF FINANCE, Issue 2 2004Chris Downing ABSTRACT Utilizing a comprehensive database of transactions in municipal bonds, we investigate the volume,volatility relation in the municipal bond market. We find a positive relation between the number of transactions and a bond's price volatility. In contrast to previous studies, we find a negative relation between average deal size and price volatility. These results are found to be robust throughout the sample. Our results are inconsistent with current theoretical models of the volume,volatility relation. These inconsistencies may arise because current models fail to account for the effects of overall market liquidity on the costs of large transactions. [source] Delivery horizon and grain market volatilityTHE JOURNAL OF FUTURES MARKETS, Issue 9 2010Berna Karali We study the difference in the volatility dynamics of CBOT corn, soybeans, and oats futures prices across different delivery horizons via a smoothed Bayesian estimator. We find that futures price volatilities in these markets are affected by inventories, time to delivery, and the crop progress period and that there are important differences in the effects across delivery horizons. We also find that price volatility is higher before the harvest starts in most cases compared to the volatility during the planting period. These results have implications for hedging, options pricing, and the setting of margin requirements. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 30:846,873, 2010 [source] Transaction tax and market quality of the Taiwan stock index futuresTHE JOURNAL OF FUTURES MARKETS, Issue 12 2006Robin K. Chou On May 1, 2000, the Taiwan government reduced the tax levied on futures transactions on the Taiwan Futures Exchange from 5 to 2.5 basis points. This event provides a unique opportunity to test empirically the impact of a tax rate reduction on trading volume, bid-ask spreads, and price volatility. Intraday and daily time series data from May 1, 1999, through April 30, 2001, are tested in a three-equation structural model. Findings show that transaction taxes have a negative impact on trading volume and bid-ask spreads, as trading volume increased and bid-ask spreads decreased in the period following the reduction in the transaction tax. This study's analysis is not consistent with the argument that the imposition of a transaction tax may reduce price volatility because there are no significant changes in price volatility after the tax reduction. Further, it was found that although the reduction in the transaction tax did reduce tax revenues, the proportional decrease in tax revenues is less than the 50% reduction in the tax rate. Finally, tax revenues in the second and third year after the tax reduction increased, as compared to the year before the tax reduction. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1195,1216, 2006 [source] The impact of electronic trading on bid-ask spreads: Evidence from futures markets in Hong Kong, London, and SydneyTHE JOURNAL OF FUTURES MARKETS, Issue 7 2004Michael J. Aitken During 1999 and 2000, three major futures exchanges transferred trading in stock index futures from open outcry to electronic markets: the London International Financial Futures and Options Exchange (LIFFE); the Sydney Futures Exchange (SFE); and the Hong Kong Futures Exchange (HKFE). These changes provide unique natural experiments to compare relative bid-ask spreads of open outcry vs. electronically traded markets. This paper provides evidence of a decrease in bid-ask spreads following the introduction of electronic trading, after controlling for changes in price volatility and trading volume. This provides support for the proposition that electronic trading can facilitate higher levels of liquidity and lower transaction costs relative to floor traded markets. However, bid-ask spreads are more sensitive to price volatility in electronically traded markets, suggesting that the performance of electronic trading systems deteriorates during periods of information arrival. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:675,696, 2004 [source] Natural gas prices and the gas storage report: Public news and volatility in energy futures marketsTHE JOURNAL OF FUTURES MARKETS, Issue 3 2004Scott C. Linn This study examines the short-term volatility of natural gas prices through an examination of the intraday prices of the nearby natural gas futures contract traded on the New York Mercantile Exchange. The influence on volatility of what many regard as a key element of the information set influencing the natural gas market is investigated. Specifically, we examine the impact on natural gas futures price volatility of the Weekly American Gas Storage Survey report compiled and issued by the American Gas Association during the period January 1, 1999 through May 3, 2002 and the subsequent weekly report compiled and issued by the U.S. Energy Information Administration after May 6, 2002. We find that the weekly gas storage report announcement was responsible for considerable volatility at the time of its release and that volatility up to 30 minutes following the announcement was also higher than normal. Aside from these results, we document pronounced price volatility in this market both at the beginning of the day and at the end of the day and offer explanations for such behavior. Our results are robust to the manner in which the mean percentage change in the futures price is estimated and to correlation of these changes both within the day and across days. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:283,313, 2004 [source] Options expiration effects and the role of individual share futures contractsTHE JOURNAL OF FUTURES MARKETS, Issue 11 2003Donald Lien This note examines options expiration effects in the presence of individual stock futures contracts with different settlement methods. It is found that the availability of the futures contracts attenuate the expiration effects on price volatility and trading volume of individual stocks. Also, the stock price tends to move up near expiration days after physical delivery replaces cash settlement. These results provide empirical support to the conjectures made in Corredor et al. (2001). © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:1107,1118, 2003 [source] Testing the mixture-of-distributions hypothesis using "realized" volatilityTHE JOURNAL OF FUTURES MARKETS, Issue 7 2003James C. Luu The mixture-of-distributions hypothesis (MDH) posits that price volatility and trading volume are both subordinated to the same information arrival rate or "news" process. Existing studies that test MDH have the problem that both the information arrival rate and volatility are unobservable. Recent work (e.g., Andersen et al., 2001) suggests that intraday returns can be used to construct estimates of daily return volatility that are more precise than those constructed using daily returns. In a way, realized volatility becomes observable. Conducting a number of tests of MDH we find that every conclusion based on the daily squared return is reversed when using realized volatility based on intraday returns. Hence, the mixed evidence on MDH in the existing literature can in part be attributed to the use of poor realized volatility measures. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:661,679, 2003 [source] The interrelation of price volatility and trading volume of currency optionsTHE JOURNAL OF FUTURES MARKETS, Issue 7 2003Ghulam Sarwar This article examines the interrelations between future volatility of the U.S. dollar/British pound exchange rate and trading volume of currency options for the British pound. The future volatility of the exchange rate is approximated alternatively by implied volatility and by IGARCH volatility. The results suggest the presence of strong contemporaneous positive feedbacks between the exchange rate volatility and the trading volume of call and put options. Previous option volumes have significant predictive power with respect to the expected future volatility of the dollar/pound exchange rate. Similarly, lagged volatilities jointly have significant predictive power for option volume. Although option volume (volatility) responds somewhat differently to individual volatility (volume) terms under the two volatility measures, the overall volume-volatility relations are broadly similar between the implied and IGARCH volatilities. The results generally support the hypothesis that the information-based trading explains more of the trading volume in currency options on the U.S. dollar/British pound exchange rate than hedging. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:681,700, 2003 [source] Approximation for convenience yield in commodity futures pricingTHE JOURNAL OF FUTURES MARKETS, Issue 10 2002Richard HeaneyArticle first published online: 13 AUG 200 The pricing of commodity futures contracts is important both for professionals and academics. It is often argued that futures prices include a convenience yield, and this article uses a simple trading strategy to approximate the impact of convenience yields. The approximation requires only three variables,underlying asset price volatility, futures contract price volatility, and the futures contract time to maturity. The approximation is tested using spot and futures prices from the London Metals Exchange contracts for copper, lead, and zinc with quarterly observations drawn from a 25-year period from 1975 to 2000. Matching Euro-Market interest rates are used to estimate the risk-free rate. The convenience yield approximation is both statistically and economically important in explaining variation between the futures price and the spot price after adjustment for interest rates. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1005,1017, 2002 [source] | |||||||||||||||||||||||||||||||