Three essays on market depth in futures markets

Liquidity is an important market characteristic for participants in every financial market. One of the three components of liquidity is market depth. Prior literature lacks a comprehensive analysis of depth in U.S. futures markets due to past limitations on the availability of data. However, recent innovations in data collection and dissemination provide new opportunities to investigate the depth dimension of liquidity. In this dissertation, the Chicago Mercantile Exchange (CME) Group proprietary database on depth is employed to study the dynamics of depth in the U.S. futures markets. This database allows for the analysis of depth along the entire limit order book rather than just at the first level. The first essay examines the characteristics of depth within the context of the five-deep limit order book. Results show that a large amount of depth is present in the book beyond the best level. Furthermore, the findings show that the characteristics of five-deep depth between day and night trading vary and that depth is unequal across levels within the limit order book. The second essay examines the link between the five-deep market depth and the bid-ask spread. The results suggest an inverse relation between the spread and the depth after adjusting for control factors. The third essay explores transitory volatility in relation to depth in the limit order book. Evidence supports the relation between an increase in volatility and a subsequent decrease in market depth. Overall, the results of this dissertation are consistent with limit order traders actively managing depth along the limit order book in electronic U.S. futures markets.

Three Essays on Market Depth in Futures Markets

Liquidity is an important market characteristic for participants in every financial market. One of the three components of liquidity is market depth. Prior literature lacks a comprehensive analysis of depth in U.S. futures markets due to past limitations on the availability of data. However, recent innovations in data collection and dissemination provide new opportunities to investigate the depth dimension of liquidity. In this dissertation, the Chicago Mercantile Exchange (CME) Group proprietary database on depth is employed to study the dynamics of depth in the U.S. futures markets. This database allows for the analysis of depth along the entire limit order book rather than just at the first level. The first essay examines the characteristics of depth within the context of the five-deep limit order book. Results show that a large amount of depth is present in the book beyond the best level. Furthermore, the findings show that the characteristics of five-deep depth between day and night trading vary and that depth is unequal across levels within the limit order book. The second essay examines the link between the five-deep market depth and the bid-ask spread. The results suggest an inverse relation between the spread and the depth after adjusting for control factors. The third essay explores transitory volatility in relation to depth in the limit order book. Evidence supports the relation between an increase in volatility and a subsequent decrease in market depth. Overall, the results of this dissertation are consistent with limit order traders actively managing depth along the limit order book in electronic U.S. futures markets.

Pairs trading profits in commodity futures markets

This study employs a pairs trading investment strategy on daily commodity futures returns. The study reveals that pairs trading in similarly related commodity futures earns statistically significant excess returns with commensurate volatility. The excess returns from pairs trading in commodity futures are unrelated to conventional market risk factors and they are not associated with classic contrarian investing. The evidence of pairs trading reflect compensation to arbitrageurs for enforcing the law of one price in similarly related market efficiency.

Resilient Maroochydore 2029 : Urban Design Futures

Resilient Maroochydore 2029 This exhibition showcases the work of 4th year undergraduate Landscape Architecture students in response to issues of sustainability in Maroochydore on the Queensland Sunshine coast. The projects comprising this exhibition all investigate possible design futures for the Maroochydore Centre, in the light of a series of new disturbance scenarios. Specific disturbances upon the landscape have been imagined, and design resolutions developed based on resilience to these disturbances. The proposals investigate how the Maroochydore Centre might respond to these scenarios, and how future components of the Centre might be designed for greater ‘resilience’. The Exhibition Five groups of students (32 in total) produced five strategic planning and design options toward this future: Team Transect: “What happens to a region following a sustained period of economic prosperity, with affordable property and negligible unemployment? This proposal investigates the effects on a community of massive population explosion, land shortages and inadequate planning regulations following an extended boom period.” The Foodfighters: “This proposal considers the scenario of massive food shortages and of escalating prices, and the possibility of government intervention to stabilise food supply. Strategies based upon simplified, collaborative approaches to food production are investigated.” The TTMKG: “This proposal explores the scenario of Peak Oil and the subsequent effects on society of homelessness, large scale unemployment, food shortages and global financial and political instability. Individual opportunities are restricted by the limitations of bicycle transportation.” Team Peak: “Peak Oil has restricted private vehicle transport to only the most wealthy, while public transport systems are under immense pressure. Rising unemployment drives localised trade initiatives, and the global import/export market has collapsed. This proposal considers the transition of a community from its position in a global economy to that of a relocalised economy, where basic needs are secured as close to home as possible.” After the City: “A rapid population decline as a result of the region’s failing economy has resulted in a fragmented urban fabric. This proposal investigates the possibility of new suburbanisation, reinterpretation and reinvention of space through phased processes.”

International stock market linkages : are overnight returns on the U.S. Market informative?

Based on the theory of international stock market co-movements, this study shows that a profitable trading strategy can be developed. The U.S. market return is considered as overnight information by ordinary investors in the Asian and the European stock markets, and opening prices in local markets reflect the U.S. overnight return. However, smart traders would either judge the impact of overnight information more correctly, or predict unreleased information. Thus, the difference between expected opening prices based on the U.S. return and actual opening prices is counted as smart traders’ prediction power, which is either a buy or a sell signal. Using index futures price data from 12 countries from 2000 to 2011, cumulative returns on the trading strategy are calculated with taking into account transaction costs. The empirical results show that the proposed trading strategy generates higher riskadjusted returns than that of the benchmarks in 12 sample countries. The trading performances for the Asian markets surpass those for the European markets because the U.S. return is the only overnight information for the Asian markets whereas the Asian markets returns are additional information to the European investors.

Tests on price linkage between the U.S. and Japanese gold and silver futures markets

We tested the price linkage, the law of one price (LOP) condition, and the causality of the price linkage between the U.S. and Japanese gold and silver futures markets with consideration of structural breaks in the price series. The LOP condition did not hold for both the gold and silver markets when structural breaks were not considered but it sustained in some periods when it was tested for the break periods. We found from the causality test that the price linkage between the U.S. and Japanese gold and silver futures markets were led by the U.S. market.

Under the skin: Wearable technology futures

Artist statement – Artisan Gallery I have a confession to make… I don’t wear a FitBit, I don’t want an Apple Watch and I don’t like bling LED’s. But, what excites me is a future where ‘wearables’ are discreet, seamless and potentially one with our body. Burgeoning E-textiles research will provide the ability to inconspicuously communicate, measure and enhance human health and well-being. Alongside this, next generation wearables arguably will not be worn on the body, but rather within the body…under the skin. ‘Under the Skin’ is a polemic piece provoking debate on the future of wearables – a place where they are not overt, not auxiliary and perhaps not apparent. Indeed, a future where wearables are under the skin or one with our apparel. And, as underwear closets the skin and is the most intimate and cloaked apparel item we wear, this work unashamedly teases dialogue to explore how wearables can transcend from the overt to the unseen. Context Wearable Technology, also referred to as wearable computing or ‘wearables’, is an embryonic field that has the potential to unsettle conventional notions as to how technology can interact, enhance and augment the human body. Wearable technology is the next-generation for ubiquitous consumer electronics and ‘Wearables’ are, in essence, miniature electronic devices that are worn by a person, under clothing, embedded within clothing/textiles, on top of clothing, or as stand-alone accessories/devices. This wearables market is predicted to grow somewhere between $30-$50 billion in the next 5 years (Credit Suisse, 2013). The global ‘wearables’ market, which is emergent in phase, has forecasted predictions for vast consumer revenue with the potential to become a significant cross-disciplinary disruptive space for designers and entrepreneurs. For Fashion, the field of wearables is arguably at the intersection of the second and third generation for design innovation: the first phase being purely decorative with aspects such as LED lighting; the second phase consisting of an array of wearable devices, such as smart watches, to communicate areas such as health and fitness, the third phase involving smart electronics that are woven into the textile to perform a vast range of functions such as body cooling, fabric colour change or garment silhouette change; and the fourth phase where wearable devices are surgically implanted under the skin to augment, transform and enhance the human body. Whilst it is acknowledged the wearable phases are neither clear-cut nor discreet in progression and design innovation can still be achieved with first generation decorative approaches, the later generation of technology that is less overt and at times ‘under the skin’ provides a uniquely rich point for design innovation where the body and technology intersect as one. With this context in mind, the wearable provocation piece ‘Under the Skin’ provides a unique opportunity for the audience to question and challenge conventional notions that wearables need to be a: manifest in nature, b: worn on or next to the body, and c: purely functional. The piece ‘Under the Skin’ is informed by advances in the market place for wearable innovation, such as: the Australian based wearable design firm Catapult with their discreet textile biometric sports tracking innovation, French based Spinali Design with their UV app based textile senor to provide sunburn alerts, as well as opportunities for design technology innovation through UNICEF’s ‘Wearables for Good’ design challenge to improve the quality of life in disadvantaged communities. Exhibition As part of Artisan’s Wearnext exhibition, the work was on public display from 25 July to 7 November 2015 and received the following media coverage: WEARNEXT ONLINE LISTINGS AND MEDIA COVERAGE: http://indulgemagazine.net/wear-next/ http://www.weekendnotes.com/wear-next-exhibition-gallery-artisan/ http://concreteplayground.com/brisbane/event/wear-next_/ http://www.nationalcraftinitiative.com.au/news_and_events/event/48/wear-next http://bneart.com/whats-on/wear-next_/ http://creativelysould.tumblr.com/post/124899079611/creative-weekend-art-edition http://www.abc.net.au/radionational/programs/breakfast/smartly-dressed-the-future-of-wearable-technology/6744374 http://couriermail.newspaperdirect.com/epaper/viewer.aspx RADIO COVERAGE http://www.abc.net.au/radionational/programs/breakfast/wear-next-exhibition-whats-next-for-wearable-technology/6745986 TELEVISION COVERAGE http://www.abc.net.au/radionational/programs/breakfast/wear-next-exhibition-whats-next-for-wearable-technology/6745986 https://au.news.yahoo.com/video/watch/29439742/how-you-could-soon-be-wearing-smart-clothes/#page1

Information flow, trading activity and commodity futures volatility

Based on unique news data relating to gold and crude oil, we investigate how news volume and sentiment, shocks in trading activity, market depth and trader positions unrelated to information flow covary with realized volatility. Positive shocks to the rate of news arrival, and negative shocks to news sentiment exhibit the largest effects. After controlling for the level of news flow and cross-correlations, net trader positions play only a minor role. These findings are at odds with those of [Wang (2002a). The Journal of Futures Markets, 22, 427–450; Wang (2002b). The Financial Review, 37, 295–316], but are consistent with the previous literature which doesn't find a strong link between volatility and trader positions.

The Economics of Gasification: A Market-Based Approach

This paper deals with the economics of gasification facilities in general and IGCC power plants in particular. Regarding the prospects of these systems, passing the technological test is one thing, passing the economic test can be quite another. In this respect, traditional valuations assume constant input and/or output prices. Since this is hardly realistic, we allow for uncertainty in prices. We naturally look at the markets where many of the products involved are regularly traded. Futures markets on commodities are particularly useful for valuing uncertain future cash flows. Thus, revenues and variable costs can be assessed by means of sound financial concepts and actual market data. On the other hand, these complex systems provide a number of flexibility options (e.g., to choose among several inputs, outputs, modes of operation, etc.). Typically, flexibility contributes significantly to the overall value of real assets. Indeed, maximization of the asset value requires the optimal exercise of any flexibility option available. Yet the economic value of flexibility is elusive, the more so under (price) uncertainty. And the right choice of input fuels and/or output products is a main concern for the facility managers. As a particular application, we deal with the valuation of input flexibility. We follow the Real Options approach. In addition to economic variables, we also address technical and environmental issues such as energy efficiency, utility performance characteristics and emissions (note that carbon constraints are looming). Lastly, a brief introduction to some stochastic processes suitable for valuation purposes is provided.

Reforming the CDM for sustainable development: lessons learned and policy futures

The Clean Development Mechanism (CDM) has successfully demonstrated that market-based mechanisms can achieve some cost effective emissions reductions in developing countries. However the distribution of CDM projects has been extremely uneven across countries and regions, and a few technologies and sectors have dominated the early stages of CDM experience. This has caused some to question whether the CDM has fallen short of its potential in contributing to sustainable development. We review the broad patterns of CDM project approvals and evaluate 10 CDM projects according to their sustainability benefits. The difficulty of defining “sustainable development” and the process of defining criteria by individual non-Annex 1 governments has meant that sustainable development concerns have been marginalized in some countries. Given these observed limitations, we present possible CDM policy futures, focusing on the main proposals for a post-2012 climate regime. Five options for enhancing the sustainable development benefits in the CDM are discussed, including proactive approaches to favour eligibility of emission reduction projects which ensure such co-benefits.

Occupational futures? Divesting real estate and corporate PFI

Property ownership can tie up large amounts of capital and management energy that business could employ more productively elsewhere. Competitive pressures, accounting changes and increasingly sophisticated occupier requirements are building demand for new and innovative ways to satisfy corporate occupation needs. The investment climate is also changing. Falling interest rates and falling inflation can be expected to undermine returns from the traditional FRI lease. In future, investment returns will be more dependent on active and innovative management geared to the needs of occupiers on whom income depends. Occupier and investor interests, therefore, look set to coincide, but unlocking the potential for both parties will depend on developing new finance and investment vehicles that align their respective needs. In the UK, examples include PFI in the public sector and off-balance sheet financing in the private sector. In the USA, “synthetic lease” structures have also become popular. Growing investment market experience in assessing risks and returns suggests scope for further innovative arrangements in the corporate sector. But how can such arrangements be structured? What are the risks, drivers and barriers?

RP94-217 No. 18 Use of Crop Futures and Options by the Nontrader

Crop producers make a number of decisions that are market related. They may be categorized as financial decisions, production decisions, or marketing decisions. All three decisions depend on what prices are likely to be at some specific time in the future. The marketing decisions is complex. This research publication discusses the number of alternatives that are available even for the producer who does not directly buy or sell futures or options contracts.

Agricultural commodities pricing model applied to the Brazilian sugar market

This article suggests a pricing model for commodities used to produce biofuel. The model is based on the concept that the deterministic component of the Wiener process is not constant and depends on time and exogenous variables. The model, which incorporates theory of storage, the convenience yield and the seasonality of harvests, was applied in the Brazilian sugar market. After predictions were made with the Kalman filter, the model produced results that were statistically more accurate than those returned by the two-factor model available in the literature.

Discretionary-based disclosure: evidence from the Brazilian market

The primary objective of this paper is to identify the factors that explain Brazilian companies level of voluntary disclosure. Underpinning this work is the Discretionary-based Disclosure theory. The sample is composed of the top 100 largest non-financial companies listed in the Bolsa de Valores de São Paulo (Brazilian Securities, Commodities, and Futures exchange - BOVESPA). Information was gathered from Financial Statements for the years ending in 2006, 2007, and 2008, with the use of content analysis. A disclosure framework based on 27 studies from these years was created, with a total of 92 voluntary items divided into two dimensions: economic (43) and socio-environmental (49). Based on the existing literature, a total of 12 hypotheses were elaborated and tested using a panel data approach. Results evidence that: (a) Sector and Origin of Control are statistically significant in all three models tested: economic, socio-environmental, and total; (b) Profitability is relevant in the economic model and in the total model; (c) Tobin s Q is relevant in the socio-environmental model and in the total disclosure model; (d) Leverage and Auditing Firm are only relevant in the economic disclosure model; (e) Size, Governance, Stock Issuing, Growth Opportunities and Concentration of Control are not statistically significant in any of the three models.