Palm Oil Futures Research Articles

Agricultural price forecasting based on the spatial and temporal influences factors under spillover effects

PurposeIntegrating artificial intelligence and quantitative investment has given birth to various agricultural futures price prediction models suitable for nonlinear and non-stationary data. However, traditional models have limitations in testing the spatial transmission relationship in time series, and the actual prediction effect is restricted by the inability to obtain the prices of other variable factors in the future.Design/methodology/approachTo explore the impact of spatiotemporal factors on agricultural prices and achieve the best prediction effect, the authors innovatively propose a price prediction method for China's soybean and palm oil futures prices. First, an improved Granger Causality Test was adopted to explore the spatial transmission relationship in the data; second, the Seasonal and Trend decomposition using Loess model (STL) was employed to decompose the price; then, the Apriori algorithm was applied to test the time spillover effect between data, and CRITIC was used to extract essential features; finally, the N-Beats model was selected as the prediction model for futures prices.FindingsUsing the Apriori and STL algorithms, the authors found a spillover effect in agricultural prices, and past trends and seasonal data will impact future prices. Using the improved Granger causality test method to analyze the unidirectional causality relationship between the prices, the authors obtained a spatial effect among the agricultural product prices. By comparison, the N-Beats model based on the spatiotemporal factors shows excellent prediction effects on different prices.Originality/valueThis paper addressed the problem that traditional models can only predict the current prices of different agricultural products on the same date, and traditional spatial models cannot test the characteristics of time series. This result is beneficial to the sustainable development of agriculture and provides necessary numerical and technical support to ensure national agricultural security.

Energy Futures Price Bubbles and Asset Co-movements with Crude Palm Oil Futures: Through the Lenses of Geopolitical Events and Speculation

Energy Futures Price Bubbles and Asset Co-movements with Crude Palm Oil Futures: Through the Lenses of Geopolitical Events and Speculation

Market efficiency and information flow between the crude palm oil and crude oil futures markets

This study analyzes the efficiency of the crude palm oil (CPO) futures market by conducting a variance ratio test and comparing it to the West Texas Intermediate (WTI) futures market. We discover that the weak-form efficient market hypothesis holds for both the CPO and WTI futures markets despite the significant difference in their liquidity. Using a scaling exponent, we investigate speculative trading activities and find that trading CPO futures in expectation of significant returns does not strongly involve a high level of risk unlike WTI futures. Our findings regarding market efficiency of the two futures markets are supported by the significant integration of the two with similar level of information flow from each market to the other. To explore the role of speculation in their market integration, we introduce a natural experimental setting using the coronavirus disease 2019 (COVID-19) pandemic, which caused a sudden decrease in the demand for fuel. The bidirectional information flow between the two markets is intensified after the COVID-19 pandemic due to lower level of speculation. The findings suggest that (i) stakeholders in the CPO market need to pay attention to the crude oil markets to anticipate its price changes, (ii) investors can use WTI futures as a hedging tool against CPO futures as long as there is mutual information flow, and (iii) regulators should carefully implement new CPO futures market policy, as either asymmetric changes in speculation or unbalanced regulation with the WTI futures market can create market distortion and regulatory arbitrage.

The impacts of infectious disease pandemic on China’s edible vegetable oil futures markets: A long-term perspective

For the extremely important role of China in global edible vegetable oil market and its decisive measures in the epidemic controlling and stable economic recovery during the COVID-19 pandemic, the aim of this article is to inspect the quantitative impacts of infectious disease pandemic on the returns, volatilities and correlations of China’s edible vegetable oil futures markets by using a DCC-MVGARCH-X model incorporating Baidu searching index as the proxy of pandemic severity. Our empirical results show that infectious disease pandemic does have significantly positive impacts on the returns and volatilities of China’s soybean, canola and palm oil futures markets. Second, there are significant volatility spillover effects among the three vegetable oils, suggesting strong contagion effect from one oil market to the others. Third, soybean oil and palm oil show the largest correlation, while the dependence between canola oil and palm oil is the smallest one among the three pairwise correlations. Moreover, no matter to consider epidemic situation in China or in global environment, infectious disease pandemic has significant effects on these correlations.

Information Flow Between Crude Palm Oil and Crude Oil Futures

This study finds asymmetric information flow from the crude palm oil (CPO) futures to the West Texas Intermediate (WTI) crude oil futures market despite the CPO futures market’s low liquidity and small market capitalization. Our finding is robust regardless of the 2019 Coronavirus outbreak and the asymmetric information flow becomes even unilateral considering the exchange rate risk on the Malaysian Ringgit. Finally, we explain the asymmetric information flow from the CPO futures to WTI futures market given that the impact of speculation on market efficiency crowds out that of liquidity.

The path to a sustainable palm oil futures market

This study analyzes the information flow between the palm oil, soybean oil, and crude oil futures markets and proposes ways to develop the vegetable oil market, especially the palm oil futures market. In contrast to the results of a Granger causality test, we provide strong evidence that interactive cause–effect relationships exist between each pair of the three oil futures markets. Yet, the emergence of the net information flow depends on the trading volume and liquidity (i) from the crude oil futures to the two vegetable oil futures markets and (ii) from the soybean oil futures to the palm oil futures market. Our findings support the fact that the palm oil futures market is still subject to tight investment constraints and, therefore, fails to play a leading role in information discovery regarding the crude oil and soybean oil futures markets. This suggests that policymakers could pursue a series of initiatives, such as introducing US dollar-based trading and extending trading hours, to further develop the palm oil futures market and reduce market friction.

Trading Activities and the Volatility of Return on Malaysian Crude Palm Oil Futures

Trading activities represent the flow of market information to the investors. This paper examines the effect of trading activities, i.e., trading volume and open interest, on the volatility of return for Malaysian Crude Palm Oil Futures. The GARCH model is applied by adding the expected and unexpected elements of trading activities (trading volume and open interest) as the independent variables. The results show that there is a negative contemporaneous relationship between the expected volume and volatility, but that a positive relationship exists between unexpected volume and volatility. On the contrary, the expected and unexpected open interest mitigate the volatility. Therefore, both trading volume and open interest should be considered together when information flows into the market.

Tail Risk in the Chinese Vegetable Oil Market: Based on the EGAS‐EVT Model

This paper uses extreme value theory and exponential generalised autoregressive score models to estimate the tail extremes of financial return series. The peak‐over‐threshold method based on the generalised pareto distribution is combined with the EGAS models and the nonparametric quantile method is used to determine the thresholds in the POT method, which is used to calculate the value‐at‐risk of financial markets and to perform backtesting. The empirical analysis was conducted on the soybean oil, rapeseed oil, and palm oil futures indices in the Chinese futures market. The study demonstrated that the EGAS‐POT models based on nonparametric quantile thresholds can effectively characterise tail risk and provide a feasible measure of risk for investors.

Does Trading Volume explain the Information Flow of Crude Palm Oil Futures Returns?

This study examines the role of trading volume in the crude palm oil (CPO)futures market as a proxy for information áow from the perspective of the mixture-of-distributions hypothesis (MDH). Using the data from January 2000 to April 2017, a sym-metric GARCH model has been estimated, in which the residuals follow alternatively thenormal Student-t and generalised error distribution. An alternative augmented model thatconsists of trading volume as an exogenous variable is estimated with the same error dis-tributions. Our results suggest several conclusions: First, the trading volume could not actas a true proxy for information áow. This indicates that volume of futures trading containsrelatively less price-sensitive information. Secondly, the inclusion of trading volume into theconditional variance equation with Student-t distributed errors is important for modellingpurposes when the returns are leptokurtic and positively skewed. Hence, it can be concludedthat the use of return and trading volume will enhance the current information set usedby practitioners and analysts in pricing the CPO futures contract when there exists a highdegree of leptokurtosis in the returns. This is the Örst study that validates the MDH in thecontext of the CPO futures market

A multi-source heterogeneous data analytic method for future price fluctuation prediction

Most previous works on future market price forecasting only utilize the historical transaction data, while ignoring many other valuable factors. Recently, many research works propose multiple-source data-based predicting approaches in the stock market. Although the futures market and the stock market are very similar, the futures market still has its uniqueness. Most importantly, the subject matter of futures is usually commodity entities with prominent competing products or upstream, downstream industries, which can significantly influence the price. Therefore, it is essential to propose a future specific analysis framework by considering different factors.In this study, we constructed a Multi-source Heterogeneous Data Analysis (MHDA) method for future price prediction by integrating multiple-source information, i.e., trading data, news event data, and investor comments. Firstly, we first constructed a relation map to capture all related news events from upstream and downstream commodities and then built a future-specific sentiment dictionary to accurately quantify the sentiment impact of related news and investor comments during the feature extraction. Finally, we model the quantified multi-source heterogeneous information by an extended Hidden Markov Model to capture the underlying temporal dependency in the data. Evaluations on the data of palm oil futures from 2016.9 to 2017.9 show the effectiveness of our proposed framework.

An Empirical Research of Futures Program Trading Based on RSI And CCI Indicators

Over the years, many scholars have conducted a wealth of empirical research on the effectiveness of technical indicator analysis in the financial market, and the conclusions are obviously different. Among them, two program trading models based on RSI and CCI indicators achieve an annual return rate of more than 180% in the empirical research of palm oil futures program trading, but the amount of data used in this study is too small, and the transaction cost is not considered. As the actual trading process has the characteristics that investors pay more attention to the sustainability of the model's profitability, and that investors’ trading varieties are diverse and with high transaction cost, this paper further verifies the sustainability and general applicability of these two models: using the closing price of 1-day and 30-minute K-line of 18 kinds of commodity futures in recent 10 years to investigate the changes of annual return rate, maximum withdrawal ratio etc. under different transaction costs and K-line cycles. The results show that the model’s profitability is time-varying, and the transaction cost has a greater influence on the rate of return of 30-minute K-lines than that of 1-day K-lines.

Palm oil spot-futures relation: Evidence from unrefined and refined products

This study examines the palm oil spot-futures relation in terms of mean and volatility spillovers from 2010 to 2018. Based on the cross-correlation function of standardised residuals and its squared residuals, our results show: first, crude palm oil (CPO) futures returns Granger cause refined palm oil, palm stearin and palm olein spot returns. Second, refined palm kernel oil spot returns Granger cause crude palm kernel oil futures returns in mean and variance. Third, CPO spot and refined palm olein futures returns are independent; and fourth, there is volatility spillover from CPO futures market to refined palm oil spot market within longer time. These findings suggest that refiners can use CPO futures returns instead of crude palm kernel oil futures returns for predicting the future spot return of refined palm oil products. To lock in purchasing price of unrefined palm oil products, the producers can rely on the spot volatility to decide the optimal number of crude palm kernel oil futures contracts.

MODELLING COMMODITY FUTURES PRICES: THE CASE OF CRUDE PALM OIL FUTURES

The present paper seeks to fulfil the gap of knowledge in crude palm oil futures (FCPO) by employing unobserved component (UC) methodology. It may perhaps be the first study in Malaysian capital market to examine FCPO prices using UC model. The empirical results indicate that FCPO presents a permanent behaviour. The transitory component exhibits a higher degree of persistence with a periodicity of approximately one year. In addition, the model of the study has proven its ability to capture unobserved characteristics of FCPO’s time series price and has shown a satisfactory performance for the sampled period in terms of fit. This study implicates that understanding the cyclical pattern, duration, and persistence provides important information that would help to create an appropriate strategy to manage risks, smooth and stabilise returns over the FCPO cycle. Such a strategy would ensure the stability and sustainability of the FCPO market.

The impact of global financial crisis on informational efficiency: Evidence from price-volume relation in crude palm oil futures market

This study examines price-volume relation in crude palm oil (CPO) futures market during the pre-crisis, crisis and post-crisis periods. Based on daily data from January 2000 to July 2017, cross-correlation function (CCF) provides four findings: First, volatilities of past trading volume and current return are correlated in pre- and post-crisis with an inconsistent sign, supporting the nature of noise trader demand. Second, in the pre-crisis period, both volatilities are negatively correlated within a short time span. Third, during the crisis period, there is no volatility spillover between both series. Fourth, in the post-crisis period, both volatilities of past trading volume and current return are positively correlated within a long time span, in addition to volatility spillover from the current return to the future trading volume which also happens within a short time span. Notably, significant volatility spillovers from trading volume to return across the crisis change the sign of correlations with a longer time span, supporting the “heterogeneity of traders” hypothesis. This study suggests that market participants have become risk-averse, particularly after the crisis. As a result, there has been an increase in volatility persistence which reduces the level of informational efficiency.

EFFECTIVE CROSS HEDGING: EVIDENCE FROM PHYSICAL CRUDE PALM OIL AND ITS INTER-RELATED AGRICULTURAL FUTURES CONTRACTS

Since its establishment, Crude Palm Oil futures contract (FCPO) has been used to directly hedge its physical crude palm oil (CPO). However, due to the excessive speculation activities on crude palm oil futures market, it has been said to be no longer an effective hedging tool to mitigate the price risk of its underlying physical market. This triggers the need for market players to find possible alternatives to ensure that the hedging role can be executed effectively. Thus this investigation attempts to examine whether other inter-related grains and oil seed futures contracts could serve as effective cross-hedging mechanisms for the CPO. Weekly data of inter-related futures contracts from Chicago Board of Trade (CBOT) and Dalian Commodity Exchange (DCE) are employed to cross hedge the physical crude palm oil prices. The study starts from 2006 until 2016. Empirical results indicate that FCPO is still the best futures contract for hedging purposes while Chicago Soybean (CBOTBO) provides second best alternative if cross-hedging is considered.
 Keywords: Crude palm oil, Crude palm oil futures, Cross Hedging, Optimal Hedge Ratio, Effective Hedging

Palm oil futures seen rising to Ringgit 2700/tonne by Jun 2018

Palm oil futures seen rising to Ringgit 2700/tonne by Jun 2018

Open outcry versus electronic trading: Tests of market efficiency on crude palm oil futures

Given the widespread transfer of trading to electronic platforms we ask whether such trading is more efficient than open outcry. Examining the Crude Palm Oil (CPO) market from 1995:06 to 2008:07, our findings, derived from a novel threshold autoregressive relative efficiency measure, are that efficiency is conditional on: (i) volatility; (ii) the maturity of the futures contract; and (iii) the market trading system. Specifically, when volatility is high, open outcry is superior for shorter maturities and electronic trading for longer maturities. These results suggest an efficiency skew and that there may be benefits to the coexistence of trading mechanisms.

The Hedging Effectiveness of Malaysian Crude Palm Oil Futures: An Application of the Extended Mean-Gini Model

This paper aims to demonstrate the superiority of Extended Mean-Gini (EMG) framework which is consistent with the second-order of stochastic dominance theory. The study provides a comprehensive analysis of investors’ distinct risk averse behavior towards optimal futures hedging strategy. The empirical distribution function method and the more efficient kernel estimation method are employed in the estimation of EMG hedge ratios. Furthermore, the moving data window procedure is used to examine the stability of the dynamic hedge ratios. The research is conducted on Malaysian Crude Palm Oil and CPO Futures markets for the period of 16th March 1995 to 28th June 2011. The empirical results show that the EMG approach is apparently more appropriate than the MV approach where EMG framework incorporates the risk aversion factor. The study also shows the instability of dynamic hedge ratios across time horizons hence not favorable to investors who adopt the “buy and hold” strategy.

Commodity Futures: A Maqasid Al-Shariah Based Analysis

This paper aims to analyse Malaysian Crude Palm Oil futures (FCPO) in light of the maqasid alShariah. The Shariah Advisory Council of the Malaysian Securities Commission (SAC) resolves that FCPO is permissible as it is in accordance with Shariah principles. The maqasid al-Shariah is the objectives and wisdom (hikmah) as prescribed by the Shariah in all its rulings to preserve the benefits of, and prevent harm to, human wellbeing. It can be categorized into three broad categories, namely daruriyyah (necessity), hajiyyah (requirement) and tahsiniyyah (embellishments). The approaches used in this study are document analysis and interviews. This study found that FCPO does not fulfil the categories of daruriyyah (necessity) and hajiyyah in the maqasid al-Shariah. Thus, it is suggested that FCPO should promote maqasid al-Shariah in its holistic direction. The legality of a financial contract is judged from the contract (aqd) aspect and equally important is on its economic and social impacts to the society.

The Impact of Global Financial Crisis on Informational Efficiency: Evidence from Price-Volume Relationship in Crude Palm Oil Futures Market

As a source of energy of biofuel and edible oil, the fluctuation of crude palm oil prices is the concern of producers and manufacturers. However, little is known about the impact of global financial crisis on informational efficiency of crude palm oil (CPO) futures market. Hence, this study aims to examine information spillover between the CPO futures price changes and volume during the pre-crisis, crisis and post-crisis periods. Result of augmented analysis provides three findings: First, in pre-crisis period, trading volume transmits information to return, in contrast return dominates this role in the post-crisis period. This asymmetric information flow supports the “heterogeneity of traders” hypothesis. Second, the volatility persistence of augmented model is relatively higher than univariate model during the post-crisis, this shows that informational efficiency has decreased after the crisis. Third, inconsistent time span observed in cross-correlation function also supports the noise traders’ hypothesis in the CPO futures market. This study observes that traders have acquired new behavior in the post-crisis period by relying on returns as the proxy of information flow.