Performance of shrimp futures markets as price discovery and hedging mechanisms

Abstract

Granger causality tests revealed leading indicators of shrimp futures prices, implying that futures prices do not reflect all available market information and potentially fail to be an exemplary price discovery mechanism. Trading simulations confirmed that the use of some leading indicators allowed profitable arbitrage in shrimp futures trading. Shrimp futures were deficient as a hedging tool, as well. Correlations between futures and wholesale cash prices were often low, and basis risk rivaled price risk. Lack of liquidity is a likely explanation for shrimp futures’ shortcomings as a hedging tool and price discovery mechanism.