We would like to thank the Norwegian Research Council for financial support.
Hoarding the Herd: The Convenience of Productive Stocks
Article first published online: 22 APR 2014
© 2014 Wiley Periodicals, Inc.
Journal of Futures Markets
How to Cite
Asche, F., Oglend, A. and Zhang, D. (2014), Hoarding the Herd: The Convenience of Productive Stocks. J. Fut. Mark.. doi: 10.1002/fut.21679
- Article first published online: 22 APR 2014
- Manuscript Accepted: 20 MAR 2014
- Manuscript Received: 11 SEP 2013
This paper investigates the convenience yield that emerges in markets with productive stocks. We isolate the economic fundamentals giving rise to the yield, and show how these map to the empirical convenience yield measure. A model for price dynamics is derived from an economic model for optimal stock levels. We show how the price process reduces to a simple non-linear first-order Markov process. The model is estimated for the Norwegian market for farmed salmon by Generalized Methods of Moments, where stock growth is approximated by sea-water temperature. Our estimation result supports the theorized role of stock growth as a convenience yield component. Our results are relevant for the functioning of futures markets for commodities such as fish and other animal production where systematic stock growth affects the term structure. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark