In this paper we propose a market consistent futures price dynamics model for cap-andtrade schemes, designed in the spirit of the European Union’s Emissions Trading Scheme (EU ETS). Historical price dynamics for the EU ETS suggest that, both, European emission Allowances (EUAs) and Certified Emission Reductions (CERs), certificates, which are generated through the Clean Development Mechanism (C...

We use a class of stochastic volatility models with multiple latent factors to investigate the joint dynamics of return, trading volume, and open interest (a proxy for market depth) in currency futures markets. In accordance with theory, the empirical evidence indicates that there is more than one latent factor affecting these three variables. However, the evidence is ambivalent on the choice b...

Internet-based virtual futures markets (VFMs) have been used in predicting election results and movie ticket sales. We construct an Internet-based VFM to predict an underlying stock price. Results of Granger causality tests and tests of directional accuracy show that a VFM with only a small number of participants (75) is able to generate informative futures prices useful in the prediction of th...

We theoretically study how commodity financialization affects trading behavior, prices and welfare through affecting risk sharing and price discovery in futures markets. In our model, the general equilibrium feature makes financial traders either provide or demand liquidity in the futures market, depending on the information environment. Consistent with recent evidence, commodity financializati...

We provide the first evidence on catalysts for price discovery in the European Union Emissions Trading System. Specifically, by employing high frequency data across a wide range of fungible securities, we find that trading costs are a more important determinant of price discovery than either the implicit provision of leverage in securities such as futures and options or the existence of market ...

In 2003, trading of commodity futures shifted from single commodity, regional exchanges to national exchanges that trade multiple commodities. This paper examines price discovery and hedging effectiveness of commodity futures after this change and concludes that,on average, futures prices do discover information relatively efficiently,but helps to manage risk less efficiently. The paper uses th...

Numerous empirical studies investigate the profitability of technical trading rules in a wide variety of markets and many find positive profits. Despite positive evidence about profitability and improvements in testing procedures, skepticism about technical trading profits remains widespread among academics mainly due to data snooping problems. This study mitigates data snooping problems by con...