Skip navigation
Full metadata record
DC FieldValueLanguage
dc.contributor.authorAcharya, Viral-
dc.contributor.authorLochstoer, Lars-
dc.contributor.authorRamadorai, Tarun-
dc.description.abstractMotivated by the literature on limits-to-arbitrage, we build an equilibrium model of commodity markets in which speculators are capital constrained, and commodity producers have hedging demands for commodity futures. Increases (decreases) in producers' hedging demand (speculators' risk capacity) increase hedging costs via price-pressure on futures, reduce producers' inventory holdings, and thus spot prices. Consistent with our model, producers' default risk forecasts futures returns,spot prices, and inventories in oil and gas market data from 1980-2006, and the component of the commodity futures risk premium associated with producer hedging demand rises when speculative activity reduces. We conclude that limits to financial arbitrage generate limits to hedging by producers, and affect both asset and goods prices.en
dc.titleLimits to Arbitrage and Hedging: Evidence from Commodity Marketsen
Appears in Collections:Finance Working Papers

Files in This Item:
File Description SizeFormat 
wpa09035.PDF2.52 MBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.