Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Email: changchialin@nchu.edu.tw
Author-Person: pch286 
Author-Workplace-Name: Department of Applied Economics, Department of Finance, National Chung Hsing University
	Taichung, Taiwan
Author-Name: Li-Hsueh Chen
Author-Workplace-Name: California State University-Los Angeles, Los Angeles, California.
Author-Name: Shawkat Hammoudeh
Author-Workplace-Name: Department of Economics, Drexel University Philadelphia, PA
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Title: Asymmetric Adjustments in the Ethanol and Grains Markets
Abstract: This paper examines the long- and short-run asymmetric adjustments and pairs trades for nine pairs of 
	spot and futures prices, itemized as three own pairs for three different bio-fuel ethanol types, three 
	own pairs for three related agricultural products, namely corn, soybeans and sugar, and three cross 
	pairs that included hybrids of the spot price of each of the agricultural products and an ethanol futures 
	price. Most of the spreads’ asymmetric adjustments generally occur during narrowing. The three ethanol 
	pairs that contain the eCBOT futures with each of Chicago spot, New York Harbor spot and Western European 
	(Rotterdam) spot show different long-run adjustments, arbitrage profitable opportunities and price risk 
	hedging capabilities. The asymmetric spread adjustments for the three grains are also different, with 
	corn spread showing the strongest long-run widening adjustment, and sugar showing the weakest narrowing 
	adjustment. Among others, the empirical analysis indicates the importance of potentially hedging the spot 
	prices of agricultural commodities with ethanol futures contracts, which sends an important message that 
	the ethanol futures market is capable of hedging price risk in agricultural commodity markets. The 
	short-run asymmetric adjustments for individual prices in the nine pairs, with the exception of the corn 
	own pair, underscore the importance of futures prices in the price discovery and hedging potential, 
	particularly for ethanol futures.
Classification-JEL: E43, Q11, Q13.
Keywords: Long run, short run, asymmetric adjustments, ethanol, agricultural products, arbitrage opportunities, 
	hedging, widening and narrowing adjustment.
Note: The authors wish to thank two referees for helpful comments and suggestions. The first author wishes to 
	acknowledge the financial support of the National Science Council, Taiwan. The fourth author is most 
	grateful for the financial support of the Australian Research Council, National Science Council, Taiwan, 
	and the Japan Society for the Promotion of Science. Corresponding author: hammousm@drexel.edu
Length: 34 pages 
Creation-Date: 2012 
Revision-Date: 2012-04 
Number: 2012-11 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1211.txt
File-URL: https://eprints.ucm.es/id/eprint/15095/1/1211.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1211