LIQUIDITY COSTS IN EMERGING CORN FUTURES MARKETS

TONIN, JULYERME MATHEUS; COSTA, GERALDO; GOMES MARTINES, JOÃO

doi:10.1590/1678-69712017/administracao.v18n6p201-223

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Strategic Finance • RAM, Rev. Adm. Mackenzie 18 (6) • Nov-Dec 2017 • https://doi.org/10.1590/1678-69712017/administracao.v18n6p201-223 copy

LIQUIDITY COSTS IN EMERGING CORN FUTURES MARKETS

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

Objective:

The present study estimates the liquidity cost of the corn future contract traded on B3 (formerly BM&FBovespa) and compare it to the CME corn future contract, through five implicit bid-ask spread measures.

Originality/value:

The market microstructure approach, with its focus on high frequency data, reveals characteristics of the emerging agricultural markets (also known as thin markets), which were not evident in studies with daily frequency data.

Design/methodology/approach:

To analyze the performance of five cost estimators, the data used in our analysis consists of intraday series of future contracts of B3 and CME from September 1, 2015, to August 30, 2016. The methodology adopted includes these estimators: Roll model (1984)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. doi 10.1111/j.1540-6261.1984.tb03897.x
https://doi.org/10.1111/j.1540-6261.1984... ; Model of Thompson & Waller (1987)Thompson, S., & Waller, M. L. (1987). The execution cost of trading in commodity futures markets. Food Research Institute Studies ,20(2), 141-163. model of Choi, Salandro & Shastri (1988)Choi, J. Y., Salandro, D., & Shastri, K. (1988). On the estimation of Bid-ask spreads: Theory and evidence. The Journal of Financial and Quantitative Analysis, 23(2), 219-230. doi 10.2307/2330882
https://doi.org/10.2307/2330882... ;Model of Chu, Ding & Pyun (1996)Chu, Q. C., Ding, D. K., & Pyun, C. S. (1996). Bid-ask bounce and spreads in the foreign exchange futures market. Review of Quantitative Finance and Accounting, 6(1), 19-37. doi 10.1007/BF00290794
https://doi.org/10.1007/BF00290794... and the model of Wang, Yau & Baptiste (1997)Wang, G. H. K., Yau, J., & Baptiste, T. (1997). Trading volume and transaction costs in futures markets. The Journal of Futures Markets, 17(7), 757-780. doi 10.1002/(SICI)1096-9934(199710)17:7<757::AID-FUT2>3.0.CO;2-M
https://doi.org/10.1002/(SICI)1096-9934(... .

Findings:

The liquidity cost is lower in CME’s future corn market than in B3, and the estimated cost of liquidity in CME’s future corn market is 2 to 3 cents (in R$/60-kgbag) while at BM & F the cost is 6 to 16 cents (in R$/60-kgbag).

KEYWORDS
High frequency Data; Bid-ask spread; Futures market; Corn market; Commodities

		RM	CSS	CDP	TW	RM	CFTC	AQS
CBOT	Mean	0,0183	0,0217	0,0185	0,0317	0,0183	0,0181	0,0247
	SD	0,0135	0,0159	0,0138	0,0088	0,0135	0,0133	0,0034
	CV	73,87%	73,15%	74,59%	27,81%	73,87%	73,45%	13,81%
B3	Mean	0,1122	0,1281	0,1085	0,0709	0,1122	0,0608	0,1599
	SD	0,1827	0,2087	0,1381	0,0877	0,1827	0,0643	0,1980
	CV	162,77%	162,93%	127,30%	123,69%	162,77%	105,71%	123,84%

	AQS	ROLL	CDP	CSS	TW	CFTC
AQS		0,730	0,780	0,678	0,680	0,602
ROLL	0,170		0,998	0,907	0,867	0,800
CDP	0,287	0,995		0,908	0,859	0,790
CSS	0,210	0,941	0,915		0,818	0,735
TW	0,460	0,367	0,562	0,337		0,850
CFTC	0,560	0,340	0,344	0,267	0,626

Maturity	Time Window	RM	CDP	CSS	TW	CFTC	AQS
C Z05	75 to 100 days	0,0146	0,0147	0,0148	0,0346	0,0170	0,0234
	46 to 75 days	0,0157	0,0159	0,0151	0,0341	0,0152	0,0230
	16 to 45 days	0,0143	0,0143	0,0125	0,0312	0,0138	0,0232
	0 to 15 days	0,0113	0,0133	0,0143	0,0451	0,0275	0,0514
C H06	75 to 100 days	0,0138	0,0142	0,0156	0,0204	0,0090	0,0230
	46 to 75 days	0,0103	0,0109	0,0127	0,0217	0,0112	0,0240
	16 to 45 days	0,0115	0,0115	0,0123	0,0194	0,0076	0,0245
	0 to 15 days	0,0455	0,0498	0,0420	0,0426	0,0273	0,0654
C K06	75 to 100 days	0,0202	0,0204	0,0229	0,0299	0,0115	0,0242
	46 to 75 days	0,0168	0,0169	0,0192	0,0220	0,0068	0,0219
	16 to 45 days	0,0171	0,0171	0,0176	0,0250	0,0141	0,0229
	0 to 15 days	0,0747	0,0767	0,0681	0,0611	0,0535	0,0543
C N06	75 to 100 days	0,0079	0,0079	0,0094	0,0241	0,0129	0,0222
	46 to 75 days	0,0143	0,0146	0,0144	0,0240	0,0133	0,0215
	16 to 45 days	0,0321	0,0324	0,0369	0,0306	0,0202	0,0220
	0 to 15 days	0,1113	0,1125	0,1057	0,0953	0,0698	0,0872
C U06	75 to 100 days	0,0380	0,0382	0,0455	0,0332	0,0208	0,0233
	46 to 75 days	0,0367	0,0373	0,0483	0,0284	0,0179	0,0223
	16 to 45 days	0,0134	0,0135	0,0179	0,0207	0,0119	0,0215

Maturity	Time Window	RM	CDP	CSS	TW	CFTC	AQS
C Z05	75 to 100 days	0,0749	0,0780	0,0869	0,0587	0,0512	0,1215
	46 to 75 days	0,0847	0,0973	0,0851	0,0513	0,0492	0,0878
	16 to 45 days	0,0429	0,0441	0,0453	0,0409	0,0381	0,0677
	0 to 15 days	0,0396	0,0416	0,0505	0,0410	0,0345	0,0696
C H06	75 to 100 days	0,1298	0,1446	0,1862	0,0849	0,1031	0,3977
	46 to 75 days	0,0601	0,0643	0,0844	0,0585	0,0292	0,3538
	16 to 45 days	0,0698	0,0755	0,0790	0,0747	0,0895	0,1986
	0 to 15 days	0,1384	0,1320	0,1664	0,0488	0,0444	0,1128
C K06	75 to 100 days	0,0624	0,0633	0,0756	0,0492	0,0472	0,0837
	46 to 75 days	0,0545	0,0557	0,0531	0,0493	0,0511	0,0993
	16 to 45 days	0,1462	0,1756	0,1521	0,1837	0,2650	0,4230
	0 to 15 days	0,0681	0,0626	0,0552	0,0770	0,1175	0,3306
C N06	75 to 100 days	0,5241	0,3962	0,6905	0,1461	0,1054	0,4365
	46 to 75 days	0,2779	0,3120	0,3752	0,0790	0,0688	0,1854
	16 to 45 days	0,0822	0,0850	0,0832	0,0697	0,0579	0,1336
	0 to 15 days	0,0701	0,0719	0,0707	0,0720	0,0458	0,1215
C U06	75 to 100 days	0,0618	0,0627	0,0679	0,0502	0,0391	0,0725
	46 to 75 days	0,0442	0,0448	0,0457	0,0473	0,0427	0,0674
	16 to 45 days	0,1493	0,1520	0,1601	0,0652	0,0643	0,0872

Editora Mackenzie; Universidade Presbiteriana Mackenzie Rua da Consolação, 896, Edifício Rev. Modesto Carvalhosa, Térreo - Coordenação da RAM, Consolação - São Paulo - SP - Brasil - cep 01302-907 - São Paulo - SP - Brazil
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[1] JULYERME MATHEUS TONIN

PhD student in Applied Economics (with PDSE scholarship sandwich, Évora University), Universidade de São Paulo (USP). Assistant Professor at the Department of Economics, Universidade Estadual de Maringá (UEM). Avenida Colombo, 5790, Cidade Universitária, Maringá - PR - Brazil - CEP 87020-900 E-mail: jmtonin@uem.br