TY - JOUR

T1 - Price formation of the salmon aquaculture futures market

AU - Ankamah-Yeboah, Isaac

AU - Nielsen, Max

AU - Nielsen, Rasmus

PY - 2017

Y1 - 2017

N2 - This study examines price formation of the internationally traded salmon futures exchange. Analyzing data from 2006 to 2015, the study identifies the co-integration relationship between the spot market price and 1–6-, 9- and 12-month futures contract prices. With exception of the 12-month maturity futures price, the unbiasedness hypothesis is shown to hold, thus evidence of risk neutrality and efficiency among the co-integrated pairs. Further, it is evident that the spot price provides leadership role in the price discovery function for the 1-, 2- and 6-months futures contract. On the contrary, the 3-, 4-, 5-, 9- and 12-months futures contracts provide the expected leadership role in the price discovery function, a case that supports a matured market that can be considered a necessary price risk management tool. The mixed finding is an indication of a maturing or near matured futures market. Analysis of the term structure of futures volatilities reveal that the shorter the length of the futures contract, the more volatility there is. This is because salmon prices exhibit short-term cyclical and seasonal patterns like other agricultural commodities. As such, salmon producers will be better off hedging in far month futures contracts, ceteris paribus.

AB - This study examines price formation of the internationally traded salmon futures exchange. Analyzing data from 2006 to 2015, the study identifies the co-integration relationship between the spot market price and 1–6-, 9- and 12-month futures contract prices. With exception of the 12-month maturity futures price, the unbiasedness hypothesis is shown to hold, thus evidence of risk neutrality and efficiency among the co-integrated pairs. Further, it is evident that the spot price provides leadership role in the price discovery function for the 1-, 2- and 6-months futures contract. On the contrary, the 3-, 4-, 5-, 9- and 12-months futures contracts provide the expected leadership role in the price discovery function, a case that supports a matured market that can be considered a necessary price risk management tool. The mixed finding is an indication of a maturing or near matured futures market. Analysis of the term structure of futures volatilities reveal that the shorter the length of the futures contract, the more volatility there is. This is because salmon prices exhibit short-term cyclical and seasonal patterns like other agricultural commodities. As such, salmon producers will be better off hedging in far month futures contracts, ceteris paribus.

KW - Aquaculture

KW - co-integration

KW - futures

KW - market efficiency

KW - price volatility

KW - risk management

U2 - 10.1080/13657305.2016.1189014

DO - 10.1080/13657305.2016.1189014

M3 - Journal article

AN - SCOPUS:84978682888

VL - 21

SP - 376

EP - 399

JO - Aquaculture, Economics and Management

JF - Aquaculture, Economics and Management

SN - 1365-7305

IS - 3

ER -