Karali, Berna

By: Karali, Berna; Isengildina-Massa, Olga; Irwin, Scott H.
Using traditional price volatility tests, we find that the market impact of USDA Cattle on Feed and Hogs and Pigs reports largely disappeared after 2000. In contrast, using market surprise tests, we find no evidence that the impact of Cattle on Feed information changed significantly after 2000. The evidence is mixed for Hogs and Pigs reports using market surprise tests, with market inventory information increasing in value and breeding inventory decreasing. The contrasting results can be explained by increasing market concentration in cattle and hogs leading to smaller market surprises and smaller futures price reactions.
By: Karali, Berna; McNew, Kevin; Thurman, Walter N.
Wheat futures contracts failed to converge to spot prices at delivery locations in 2008–2009. By analyzing basis at nondelivery locations surrounding this episode, we study the spatial pattern of failures to converge. We find that basis fell as distance from delivery location increased and remained tightly connected to basis at the delivery location during the nonconvergence episodes. This finding is uniform throughout the delivery zone. We conclude that nonconvergence did not affect the economic relationship between delivery and nondelivery locations’ spot prices but only affected the connection between futures prices and spot prices.
By: Dorfmann, Jeffrey; Karali, Berna
Two nonparametric tests are employed to investigate the potential information value of USDA crop and livestock reports. If daily returns on days that reports are released (announcement days) differ when compared to non-announcement days for a sizeable number of commodities from a set of seven futures markets studied, we deem the report to contain market-moving information. The question of report value has been unsettled in the literature with results varying somewhat across studies and across reports. This study finds market-moving value in five of the USDA reports investigated, with six other reports showing little or no market-moving value in the markets examined. While most of our results confirm and add robustness to earlier results, there are some differences both for certain reports and certain commodities.
By: Schnake, Kristin N.; Karali, Berna; Dorfman, Jeffrey H.
Futures markets have two main goals: price discovery and risk management. Because management decisions often have to be made on a time horizon longer than the time until expiration of the nearby futures contract, it is important to determine how well distant-delivery futures contracts are able to assist in price discovery. We focus on soybean and live cattle distant-delivery futures contracts and test for the informational value added to nearby contracts. Two tests for information value provide partially conflicting results due to the different information measures employed. If being able to predict the price trend is sufficient, then we find some information value in distantdelivery futures contracts, while if accurate point estimates of future spot prices are desired the results are negative. Surprisingly, we do not find the expected dichotomy between the storable (soybeans) and non-storable (cattle) commodities.
The value of USDA reports has long been a question of interest for researchers and practitioners. However, the impact of announcements on comovements across related commodity prices has not been explored beyond financial asset markets. This is important because the structure of the relationship between commodities could change depending on the type of information revealed in the announcement, thus affecting price perceptions, hedging ratios, and portfolio return variance. This study simultaneously measures the impact of selected USDA reports on the conditional variances and covariances of returns on corn, lean hogs, soybeans, soybean meal, and soybean oil futures contracts using a multivariate GARCH model. It is shown that the largest movements in covariances are observed on the release days of Feed Outlook, Grain Stocks, and Hogs and Pigs reports.
By: Karali, Berna; Thurman, Walter N.
We analyze the determinants of daily futures price volatility in corn, soybeans, wheat, and oats markets from 1986 to 2007. Combining the information from simultaneously traded contracts, a generalized least squares method is implemented that allows us to clearly distinguish among time-to-delivery effects, seasonality, calendar trend, and volatility persistence. We find strong evidence of time-to-delivery (Samuelson) effects and systematic seasonal components with volatility increasing prior to harvest times— an indirect confirmation of the theory of storage.