THE EFFECT OF DIARY FUTURES TRADING ACTIVITY ON THEIR PRICE VOLATILITY: LITERATURE REVIEW
Dairy futures price volatility plays an important role in dairy farmers’ risk management as well as dairy commodities price discovery. Trading activity as a factor for agricultural futures price volatility has been studied extensively since the emerge of commodity index traders followed by commodity markets becoming more volatile in the last decade. However, the majority of research papers investigate major cereal future contracts whereas the research on dairy futures is not yet analyzed. The aim of this review is to present the current situation in the research of dairy futures trading activity effect on their price volatility, focusing on methodological progress and related issues. This review provides a comparative analysis of empirical research articles on dairy futures price volatility and its determinants published in 2005 and later. Dairy futures markets compared to other agricultural commodity markets were less liquid and more fragmented, however, they likewise experienced a significant price volatility and seasonality during observed time periods. High price volatility was especially present in cash settled butter futures. Even though there is an indication among selected studies that trading activity correlate with price volatility, this should be supplemented by an analysis of causal relationships. Therefore, a further research on dairy futures should provide necessary tools to measure the exact effect of trading activity on price volatility in order to provide better insights on using dairy futures as an effective means for managing price risk in dairy sector.
JEL Codes: G13, Q02, C58.
All articles published in Science and Studies of Accounting and Finance: Problems and Perspectives are under the Creative Commons Attribution-NonCommercial 3.0 Unported license, allowing third parties to share their work (copy, distribute, transmit) and to adapt it, under the condition that the authors are given credit, that the work is not used for commercial purposes, and that in the event of reuse or distribution, the terms of this license are made clear.
Authors retain copyright of their work, with first publication rights granted to Vytautas Magnus University Agriculture Academy. However, authors are required to transfer copyrights associated with commercial use to the Publisher.
Authors are permitted and encouraged to post items submitted to this journal on personal or institutional websites, prior to and after publication (while providing the bibliographic details of that publication).