The Effects of Supply and Interest Rate Shocks in Commodity Futures Markets

Abstract

Abstract This paper extends previous studies of futures markets to highlight the role of expectations in the analysis of supply and interest rate shocks. Shocks which are expected to be permanent generally will create larger movements in spot and futures prices than shocks which are regarded as transitory. Further, the reactions of spot and futures prices may differ both qualitatively and quantitatively depending on whether new information refers to events in the current period or to likely developments in some future period. The results demonstrate the potential importance of capturing expectations effects in empirical studies of futures market behavior.