A Model Of Disequilibrium Adjustments Between Spot And Futures Markets (Econometrics).

This dissertation examines commodity markets with futures trading. In particular it attempts to model commodity markets with futures trading by integrating aspects of both futures and spot markets. It is argued that factors that affect the spot market, will affect the futures market, and vice versa. Therefore, a model describing a commodity with futures trading should depict the interaction between these two markets. The second area of interest in this dissertation is the short run disequilibrium aspects of commodity markets with futures trading. The characteristics of disequilibrium discussed include lags, expectations, excess demand, excess speculative demand and learning. Expectations are seen to be an important reason for the existence of disequilibrium. Expectations are typically seen to be less than perfect. It is suggested that traders and producers react to expected price and/or quantity levels and make plans accordingly. The difference between the actual level of a price or quantity and its expected level is the expectations gap. The speed of adjustment to the expectations gap helps to determine how quickly the markets adjust to short run disequilibrium. A model of the wheat market was estimated using the disequilibrium specification. This model incorporates the impacts of expectations, lags, excess demand and excess speculative demand. In addition, this model is seen to describe short run changes in the market, as it is a monthly model