Integration of Commodity Derivative Markets: Has it Gone Too Far ?

28 Pages Posted: 30 Apr 2014 Last revised: 16 Sep 2014

See all articles by Delphine Lautier

Delphine Lautier

University Paris Dauphine

Julien Ling

Paris Dauphine University, Department of Finance ; EDF Energy - Finance for Energy Market Research Centre

Franck Raynaud

Lausanne University, Swiss Institute of Bioinformatics

Date Written: July 18, 2014

Abstract

We examine the impact of two financial crises on commodity derivative markets: the subprime crisis and the bankruptcy of Lehman Brothers. These crises are "ex- ternal" to the commodity markets because they occurred in the financial sphere. Still, because commodity markets are now highly integrated with each other and with other financial markets, such events could have had an impact. In order to fully comprehend this possible impact, we rely on tools inspired by the graph theory that allow for the study of large databases. We examine the daily price fluctuations recorded in 14 derivative markets from 2000 to 2009 in three dimensions: the ob- servation time, the space dimension – the same underlying asset can be traded simultaneously in two different places – and the maturity of the transactions. We perform an event study in which we first focus on the efficiency of the price shock’s transmission to the commodity markets during the crises. Then we concentrate on whether the paths of shock transmission are modified. Finally, relying on the measure proposed by Bonacich (1987) for social networks, we focus on whether the centrality of the price system changes.

Keywords: commodity markets, financial markets, derivative markets, market integration, crises, graph theory, minimum spanning tree, centrality

JEL Classification: E44, F15, G01, Q02, Q40

Suggested Citation

Lautier, Delphine and Ling, Julien and Raynaud, Franck, Integration of Commodity Derivative Markets: Has it Gone Too Far ? (July 18, 2014). Available at SSRN: https://ssrn.com/abstract=2430167 or http://dx.doi.org/10.2139/ssrn.2430167

Delphine Lautier

University Paris Dauphine ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

Julien Ling (Contact Author)

Paris Dauphine University, Department of Finance ( email )

Place du Maréchal de Tassigny
Paris
France

EDF Energy - Finance for Energy Market Research Centre ( email )

France

Franck Raynaud

Lausanne University, Swiss Institute of Bioinformatics ( email )

bugnon 27
Lausanne, 1011
Switzerland

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