NDLI: Revisiting the relationship between spot and futures markets: evidence from commodity markets and NARDL framework.

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Revisiting the relationship between spot and futures markets: evidence from commodity markets and NARDL framework.

Content Provider	Europe PMC
Author	Ameur, Hachmi Ben Ftiti, Zied Louhichi, Waël
Abstract	This study aims to investigate the relationship between the spot and futures commodity markets. Considering the complexity of the relationship, we use a nonlinear autoregressive distributed lag (NARDL) framework that considers the asymmetry and nonlinearity in both the long and short run. Based on the daily returns of six commodity indices reaggregated on three commodity types, our study reaches some interesting findings. Our analysis highlights a bidirectional relationship between both markets over the short and long run, with a greater lead for the futures market. This result confirms the future market’s dominant contribution to price discovery in commodities. Changes in commodity prices appear first in the futures market, as informed investors and speculators prefer trading on this market that is characterized by low costs and a high-leverage effect. Then, the information is transmitted from the futures to the spot market through arbitrageurs’ activity, which explains the nonlinearity of the relationship. These results are helpful to scholars, investors and policymakers.
Related Links	https://europepmc.org/backend/ptpmcrender.fcgi?accid=PMC8314855&blobtype=pdf
ISSN	02545330
Journal	Annals of Operations Research [Ann Oper Res]
Volume Number	313
DOI	10.1007/s10479-021-04172-3
PubMed Central reference number	PMC8314855
Issue Number	1
PubMed reference number	34334864
e-ISSN	15729338
Language	English
Publisher	Springer US
Publisher Date	2021-07-27
Publisher Place	New York
Access Restriction	Open
Rights License	This article is made available via the PMC Open Access Subset for unrestricted research re-use and secondary analysis in any form or by any means with acknowledgement of the original source. These permissions are granted for the duration of the World Health Organization (WHO) declaration of COVID-19 as a global pandemic. © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021
Subject Keyword	Commodity markets NARDL Spot market Futures market Lead–lag relationship C58 G1 Q02
Content Type	Text
Resource Type	Article
Subject	Management Science and Operations Research Decision Sciences

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