Research in Commodity Futures and Options Markets

This list is partly based on the reading list of the Research on Futures and Options Seminar (ACE 528)
offered by University of Illinois at Urbana-Champaign.

Surveys
• Garcia, P. and R. M. Leuthold (2004). “A Selected Review of Agricultural Commodity Futures
and Options Markets” European Review of Agriculture Economics 31, 3: 235–272. Available at:
http://erae.oupjournals.org/cgi/doi/10.1093/erae/31.3.235
• Williams, J. C. (2001). “Commodity Futures and Options” Handbook of agricultural economics: 745–816.
Available at: http://linkinghub.elsevier.com/retrieve/pii/S1574007201100216

Overview
• Peck, A. E. (1985). “The Economic Role of Traditional Commodity Futures Markets” Futures Markets:
Their Economic Role. Washington, DC: American Enterprise Institute for Public Policy Research: 1–81.
Available at: http://goo.gl/bsb7J8
• Irwin, S. H. and D. R. Sanders (2012). “Financialization and Structural Change in Commodity
Futures Markets” Journal of Agricultural and Applied Economics 44, 3: 371–396. Available at: http:
//ageconsearch.umn.edu/bitstream/130280/2/jaae443ip8.pdf

Development of Futures Markets

• Gray, R. W. and Others (1966). “Why Does Futures Trading Succeed or Fail: An Analysis of Selected
Commodities” Futures trading seminar 3: 115–137. Available at: http://bit.ly/1Re3EiV
• Working, H. (1970). “Economic Functions of Futures Markets” Futures Trading in Livestock–Origins
and Concepts, Chicago: Chicago Mercantile Exchange: 267–297. Available at: http://goo.gl/l5FzwN
• Leuthold, R. M. (1994). “Evaluating Futures Exchanges in Liberalising Economies” Development Policy
Review 12, 2: 149–164. Available at: http://doi.wiley.com/10.1111/j.1467-7679.1994.tb00061.x
• Brorsen, B. W. and N. Fofana (2001). “Success and Failure of Agricultural Futures Contracts” Journal
of Agribusiness 19, 2: 129–146. Available at: http://purl.umn.edu/14692

Market Microstructure and the Costs of Trade Execution

• Roll, R. (1984). “A Simple Implicit Measure of the Effective bid-ask Spread in an Efficient Market”
The Journal of Finance 39, 4: 1127–1139. Available at: http://doi.wiley.com/10.1111/j.1540-6261.1984.
tb03897.x
• Bryant, H. L. and M. S. Haigh (2004). “Bid-ask Spreads in Commodity Futures Markets” Applied
Financial Economics 14, 13: 923–936. Available at: http://www.tandfonline.com/doi/abs/10.1080/
0960310042000284669
• Frank, J. and P. Garcia (2011). “Bid-Ask Spreads, Volume, and Volatility: Evidence from Livestock
Markets” American Journal of Agricultural Economics 93, 1: 209–225. Available at: http://ajae.
oxfordjournals.org/cgi/doi/10.1093/ajae/aaq116
• Martinez, V., P. Gupta, Y. Tse and J. Kittiakarasakun (2011). “Electronic Versus Open Outcry Trading
in Agricultural Commodities Futures Markets” Review of Financial Economics 20, 1: 28–36. Available
at: http://linkinghub.elsevier.com/retrieve/pii/S1058330010000443

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 • Wang, X., P. Garcia and S. H. Irwin (2014). “The Behavior of Bid-Ask Spreads in the Electronically-
Traded Corn Futures Market” American Journal of Agricultural Economics 96, 2: 557–577. Available
at: http://ajae.oxfordjournals.org/cgi/doi/10.1093/ajae/aat096

Price Discovery
• Garbade, K. D. and W. L. Silber (1983). “Price Movements and Price Discovery in Futures and Cash
Markets” The Review of Economics and Statistics 65, 2: 289. Available at: http://www.jstor.org/
stable/1924495
• Gonzalo, J. and C. Granger (1995). “Estimation of Common Long-Memory Components in Cointegrated
Systems” Journal of Business & Economic Statistics 13, 1: 27. Available at: http://www.jstor.org/
stable/1392518
• Hasbrouck, J. (1995). “One Security, Many Markets: Determining the Contributions to Price Discovery”
The Journal of Finance 50, 4: 1175. Available at: http://onlinelibrary.wiley.com/doi/10.1111/j.1540-
6261.1995.tb04054.x/abstract http://www.jstor.org/stable/2329348
• Yang, J., D. A. Bessler and D. J. Leatham (2001). “Asset Storability and Price Discov-
ery in Commodity Futures Markets: A new look” Journal of Futures Markets 21, 3: 279–
300. Available at: http://doi.wiley.com/10.1002/1096-9934(200103)21:3{\textless}279::AID-
FUT5{\textgreater}3.0.CO;2-L
• Andersen, T. G., T. Bollerslev, F. X. Diebold and C. Vega (2007). “Real-time Price Discovery in
Global Stock, Bond and Foreign Exchange Markets” Journal of International Economics 73, 2: 251–277.
Available at: http://linkinghub.elsevier.com/retrieve/pii/S0022199607000608
• Janzen, J. P., A. D. Smith and C. A. Carter (2013). “The Quality of Price Discovery Under Electronic
Trading: The Case of Cotton Futures” Available at: http://bit.ly/209L0Pc

Storage and Intertemporal Pricing

• Working, H. (1948). “Theory of the Inverse Carrying Charge in Futures Markets” Journal of Farm
Economics 30, 1: 1–28. Available at: http://ajae.oxfordjournals.org/cgi/doi/10.2307/1232678
• Working, H. (1949). “The Theory of Price of Storage” The American Economic Review 39, 6: 1254–1262.
Available at: http://www.jstor.org/stable/1816601
• Benirschka, M. and J. K. Binkley (1995). “Optimal Storage and Marketing Over Space and Time”
American Journal of Agricultural Economics 77, 3: 512–524. Available at: http://ajae.oxfordjournals.
org/cgi/doi/10.2307/1243220
• Pindyck, R. S. (2001). “The Dynamics of Commodity Spot and Futures Markets: A Primer” The
Energy Journal 22, 3. Available at: http://www.iaee.org/en/publications/ejarticle.aspx?id=1364
• Peterson, H. H. and W. G. Tomek (2005). “How Much of Commodity Price Behavior Can a Rational
Expectations Storage Model Explain?” Agricultural Economics 33, 3: 289–303. Available at: http:
//doi.wiley.com/10.1111/j.1574-0864.2005.00068.x
• Carter, C. A. and C. L. R. Giha (2007). “The Working Curve and Commodity Storage under
Backwardation” American Journal of Agricultural Economics 89, 4: 864–872. Available at: http:
//ajae.oxfordjournals.org/cgi/doi/10.1111/j.1467-8276.2007.01021.x

Hedging: Alternative Views

• Working, H. (1953). “Hedging Reconsidered” Journal of Farm Economics 35, 4: 544. Available at:
http://ajae.oxfordjournals.org/cgi/doi/10.2307/1233368
• Ederington, L. H. (1979). “The Hedging Performance of the New Futures Markets” The Journal of
Finance 34, 1: 157–170. Available at: http://doi.wiley.com/10.1111/j.1540-6261.1979.tb02077.x

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 • Hirshleifer, D. (1988). “Residual Risk, Trading Costs, and Commodity Futures Risk Premia” Review of
Financial Studies 1, 2: 173–193. Available at: http://rfs.oxfordjournals.org/cgi/doi/10.1093/rfs/1.2.173
• Hirshleifer, D. (1990). “Hedging Pressure and Futures Price Movements in a General Equilibrium
Model” Econometrica 58, 2: 411. Available at: http://www.jstor.org/stable/2938209?origin=crossref
• Myers, R. J. and S. R. Thompson (1989). “Generalized Optimal Hedge Ratio Estimation” American
Journal of Agricultural Economics 71, 4: 858. Available at: http://ajae.oxfordjournals.org/cgi/doi/10.
2307/1242663
• Myers, R. J. (1991). “Estimating Time-varying Optimal Hedge Ratios on Futures Markets” Journal of
Futures Markets 11, 1: 39–53. Available at: http://doi.wiley.com/10.1002/fut.3990110105
• Lien, D. and Y. K. K. Tse (2002). “Some recent developments in futures hedging” Journal of Economic
Surveys 16, 3: 357–396. Available at: http://onlinelibrary.wiley.com/doi/10.1111/1467-6419.00172/
abstract
• Mattos, F., P. Garcia and J. M. Pennings (2008). “Probability Weighting and Loss Aversion in Futures
Hedging” Journal of Financial Markets 11, 4: 433–452. Available at: http://linkinghub.elsevier.com/
retrieve/pii/S1386418108000189
• Pannell, D. J., G. Hailu, A. Weersink and A. Burt (2008). “More Reasons Why Farmers Have
So Little Interest in Futures Markets” Agricultural Economics 39, 1: 41–50. Available at: http:
//doi.wiley.com/10.1111/j.1574-0862.2008.00313.x
• Wu, F., Z. Guan and R. J. Myers (2011). “Volatility Spillover Effects and Cross Hedging in Corn And
Crude Oil Futures” Journal of Futures Markets 31, 11: 1052–1075. Available at: http://doi.wiley.com/
10.1002/fut.20499
• Chen, S.-S., C.-F. Lee and K. Shrestha (2013). “Futures Hedge Ratios: A Review” Encyclopedia of
finance: 871–890.
• Conlon, T., J. Cotter and R. Gençay (2015). “Commodity Futures Hedging, Risk Aversion and the
Hedging Horizon” The European Journal of Finance: 1–27. Available at: http://www.tandfonline.com/
doi/full/10.1080/1351847X.2015.1031912

Returns to Speculation and Risk Premiums

• Financial market analysis (risk factor models etc.) for commodity markets
• Dusak, K. (1973). “Futures Trading and Investor Returns: An Investigation of Commodity Market
Risk Premiums” Journal of Political Economy 81, 6: 1387. Available at: http://www.journals.uchicago.
edu/doi/abs/10.1086/260133
• Hartzmark, M. L. (1987). “Returns to Individual Traders of Futures: Aggregate Results” Journal of
Political Economy 95, 6: 1292. Available at: http://www.journals.uchicago.edu/doi/abs/10.1086/261516
• Frank, J. and P. Garcia (2009). “Time-varying risk premium: further evidence in agricultural futures
markets” Applied Economics 41, 6: 715–725. Available at: http://www.tandfonline.com/doi/abs/10.
1080/00036840601019026
• Daskalaki, C. and G. Skiadopoulos (2011). “Should Investors Include Commodities in their Portfolios
after All? New Evidence” Journal of Banking & Finance 35, 10: 2606–2626. Available at: http:
//linkinghub.elsevier.com/retrieve/pii/S0378426611000938
• Aulerich, N. M., S. H. Irwin and P. Garcia (2013). “Returns to Individual Traders in Agricultural
Futures Markets: Skill or Luck?” Applied Economics 45, 25: 3650–3666. Available at: http://www.
tandfonline.com/doi/abs/10.1080/00036846.2012.727979
• Brooks, C., M. Prokopczuk and Y. Wu (2013). “Commodity Futures Prices: More Evidence on Forecast
Power, Risk Premia and the Theory of Storage” The Quarterly Review of Economics and Finance 53, 1:
73–85. Available at: http://linkinghub.elsevier.com/retrieve/pii/S1062976913000045
• Dewally, M., L. H. Ederington and C. S. Fernando (2013). “Determinants of Trader Profits in
Commodity Futures Markets” Review of Financial Studies 26, 10: 2648–2683. Available at: http:
//rfs.oxfordjournals.org/lookup/doi/10.1093/rfs/hht048
• Gorton, G. B., F. Hayashi and K. G. Rouwenhorst (2013). “The Fundamentals of Commodity Futures
Returns” Review of Finance 17, 1: 35–105. Available at: http://rof.oxfordjournals.org/cgi/doi/10.1093/
rof/rfs019

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 • Szymanowska, M., F. De Roon, T. Nijman and R. Van den Goorbergh (2014). “An anatomy of
commodity futures risk premia” The Journal of Finance 69, 1: 453–482. Available at: http://doi.wiley.
com/10.1111/jofi.12096

Forecast Accuracy and Informational Efficiency

• McKenzie, A. M. and M. T. Holt (2002). “Market Efficiency in Agricultural Futures Markets” Ap-
plied Economics 34, 12: 1519–1532. Available at: http://www.tandfonline.com/doi/abs/10.1080/
00036840110102761
• Timmermann, A. and C. W. Granger (2004). “Efficient Market Hypothesis and Forecasting” Interna-
tional Journal of Forecasting 20, 1: 15–27. Available at: http://linkinghub.elsevier.com/retrieve/pii/
S0169207003000128
• Sanders, D. R. and M. R. Manfredo (2005). “Forecast Encompassing as the Necessary Condition to
Reject Futures Market Efficiency: Fluid Milk Futures” American Journal of Agricultural Economics 87,
3: 610–620. Available at: http://ajae.oxfordjournals.org/cgi/doi/10.1111/j.1467-8276.2005.00751.x
• Park, C.-H. and S. H. Irwin (2009). “A reality check on technical trading rule profits in the U.S. futures
markets” Journal of Futures Markets 30, 7: 633–659. Available at: http://doi.wiley.com/10.1002/fut.
20435
• Colino, E. V. and S. H. Irwin (2010). “Outlook vs. Futures: Three Decades of Evidence in Hog
and Cattle Markets” American Journal of Agricultural Economics 92, 1: 1–15. Available at: http:
//ajae.oxfordjournals.org/cgi/doi/10.1093/ajae/aap013

Price Effects of Futures Trading

• Gray, R. W. (1963). “Onions Revisited” Journal of Farm Economics 45, 2: 273. Available at:
http://ajae.oxfordjournals.org/cgi/doi/10.2307/1235974
• Cox, C. C. (1976). “Futures Trading and Market Information” Journal of Political Economy 84, 6:
1215. Available at: http://www.journals.uchicago.edu/doi/abs/10.1086/260509
• Kawai, M. (1983). “Spot and Futures Prices of Nonstorable Commodities Under Rational Expectations*”
The Quarterly Journal of Economics 98, 2: 235. Available at: http://qje.oxfordjournals.org/lookup/
doi/10.2307/1885623
• Turnovsky, S. J. and R. B. Campbell (1985). “The Stabilizing and Welfare Properties of Futures
Markets: A Simulation Approach” International Economic Review 26, 2: 277. Available at: http:
//www.jstor.org/stable/2526584
• Lence, S. H. (2009). “Do Futures Benefit Farmers?” American Journal of Agricultural Economics 91, 1:
154–167. Available at: http://ajae.oxfordjournals.org/cgi/doi/10.1111/j.1467-8276.2008.01162.x
• Büyükşahin, B. and M. A. Robe (2014). “Speculators, Commodities and Cross-market Linkages”
Journal of International Money and Finance 42: 38–70. Available at: http://linkinghub.elsevier.com/
retrieve/pii/S026156061300106X
• Hamilton, J. D. and J. C. Wu (2015). “Effects of Index-Fund Investing on Commodity Futures Prices”
International Economic Review 56, 1: 187–205. Available at: http://doi.wiley.com/10.1111/iere.12099

Delivery and Manipulation

• Pirrong, S. C. (1993). “Manipulation of the Commodity Futures Market Delivery Process” The Journal
of Business 66, 3: 335. Available at: http://www.journals.uchicago.edu/doi/abs/10.1086/296608
• Hranaiova, J. and W. G. Tomek (2002). “Role of Delivery Options in Basis Convergence” Journal of
Futures Markets 22, 8: 783–809. Available at: http://doi.wiley.com/10.1002/fut.10028

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 • Pirrong, C. (2004). “Detecting Manipulation in Futures Markets: The Ferruzzi Soybean Episode”
American Law and Economics Association 6, 1: 28–71. Available at: http://aler.oupjournals.org/cgi/
doi/10.1093/aler/ahg010
• Garcia, P., S. H. Irwin and A. Smith (2015). “Futures Market Failure?” American Journal of Agricultural
Economics 97, 1: 40–64. Available at: http://ajae.oxfordjournals.org/cgi/doi/10.1093/ajae/aau067

Options Markets, Volatility and Volatility Forecasting

• Black, F. (1976). “The Pricing of Commodity Contracts” Journal of Financial Economics 3, 1-2:
167–179. Available at: http://linkinghub.elsevier.com/retrieve/pii/0304405X76900246
• Simon, D. P. (2002). “Implied Volatility Forecasts in the Grains Complex” Journal of Futures Markets
22, 10: 959–981. Available at: http://doi.wiley.com/10.1002/fut.10042
• Szakmary, A., E. Ors, J. Kyoung Kim and W. N. Davidson (2003). “The Predictive Power of Implied
Volatility: Evidence from 35 Futures Markets” Journal of Banking & Finance 27, 11: 2151–2175.
Available at: http://linkinghub.elsevier.com/retrieve/pii/S0378426602003230
• Egelkraut, T. M., P. Garcia and B. J. Sherrick (2007). “The Term Structure of Implied Forward
Volatility: Recovery and Informational Content in the Corn Options Market” American Journal of
Agricultural Economics 89, 1: 1–11. Available at: http://ajae.oxfordjournals.org/cgi/doi/10.1111/j.
1467-8276.2007.00958.x

Other Topics:

Distribution and Volatility of Futures Prices, and Implications

High Frequency & Algorithmic Trading

Market Spillover

• Serra, T. and D. Zilberman (2013). “Biofuel-related price transmission literature: A review” Energy
Economics 37: 141–151. Available at: http://linkinghub.elsevier.com/retrieve/pii/S0140988313000388
• Gardebroek, C. and M. A. Hernandez (2013). “Do Energy Prices Stimulate Food Price
Volatility? Examining Volatility Transmission between US Oil, Ethanol and Corn Markets”
Energy Economics 40: 119–129. Available at: http://dx.doi.org/10.1016/j.eneco.2013.06.013
http://linkinghub.elsevier.com/retrieve/pii/S0140988313001266
• Trujillo-Barrera, A., M. L. Mallory and P. Garcia (2012). “Volatility Spillovers in US Crude Oil, Ethanol,
and Corn Futures Markets” Journal of Agricultural and Resource Economics 37, 2: 1–16. Available at:
http://ageconsearch.umn.edu/bitstream/134275/2/pp247-262,Trujillo-Barrera.pdf

Portfolio allocation/optimization including commodities

Financialization of commodity markets

• Cheng, I.-H., A. Kirilenko and W. Xiong (2015). “Convective Risk Flows in Commodity Futures
Markets” Review of Finance 19, 5: 1733–1781. Available at: http://rof.oxfordjournals.org/lookup/doi/
10.1093/rof/rfu043

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Corporate finance and risk management related to commodity markets

Econometric/statistical analysis of commodity markets

Decision models (OR/MS models) applied to the commodity sector

Real option analysis investigating commodity project investment and production

decisions

Managerial accounting & economics for commodity related corporations

Micro & macroeconomic analysis of commodity markets

Global and regional trade of commodities

The role of commodity production and consumption for developing countries

A. Suggested Guide for “Reading” Journal Articles, by Vithala

Rao, Cornell
Allow enough time to read the article at least twice. In the first reading, which may be quite superficial, try
to get a general idea of the subject matter examined, uniqueness of the approach, and significant results. In
the second reading, try to be critical of the concepts, assumptions, models, and application. If necessary, look
over the article for a third time to seek a sharper understanding of the article and to evaluate where else the
results and models can be applied.
While reading the article try and answer the questions indicated below for yourself. Doing so should
significantly enhance your understanding of the research reported and your ability to critique the work. Note
that some published articles may not fit this format.

A) What aspect(s) of the business system is (are) being studied by the author? (E.g., relationship between
a firm and competitor, consumer choices over time.)
B) What are some significant research issues addressed in the paper? Reflect upon why they are significant.

C) What specific managerial decisions can be addressed by the results reported in the paper? Are these
decisions made better when the recommendations from this research are adopted?
D) 1. What is (are) the microunit(s) whose “behavior” is (are) being addressed in the paper?
2. State the basic model of the behavior of the microunit in words or as a flow chart. State the
premises and assumptions of the model. Identify major constructs.
3. State the basic model of the behavior of the microunit in a mathematical form and identify the
variables (predictor or criterion) and the parameters (unknown) of the model.
E) Does the paper deal with aggregation of the model across various microunits or segments? If so, how is
this aggregation accomplished? If aggregation is not considered, what are the effects of the assumption
of homogeneity?

F) How are the variables of the model measured? Are these measures appropriate? What are the sources
of data? How reliable are these measures? What are some alternative ways of measuring the variables?
G) How are the parameters of the model estimated? Are the properties of the estimates discussed? (For
example, are they unbiased and/or consistent?)

6
H) Is the empirical application discussed in the papers appropriate? Are the results validated? (This
aspect may not be relevant for some articles.)
I) Are the results interpreted well? Are there any alternative explanations of the results?
J) Identify one or two other applications of the basic model?

K) What general conclusions can be drawn? In what ways does this article contribute to (or extend) our
understanding of our field of study in the substantive area(s) examined by the article?