Limits to arbitrage and hedging: Evidence from commodity markets

• Published in: Journal of financial economics Vol. 109; no. 2; pp. 441 - 465
• Main Authors: Acharya, Viral V., Lochstoer, Lars A., Ramadorai, Tarun
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.08.2013; Elsevier Sequoia S.A
• Subjects: Arbitrage; Commodities; Commodity futures; Commodity market; Commodity markets; Commodity prices; Economic theory; Equilibrium; Equilibrium models; Futures; Futures pricing; Hedging; Limits to arbitrage; Oil market; Prices; Speculators; Spot prices; Studies; G00; G32; Q49; G13; Commodity markets; Hedging; Limits to arbitrage; Futures pricing

We build an equilibrium model of commodity markets in which speculators are capital constrained, and commodity producers have hedging demands for commodity futures. Increases in producers' hedging demand or speculators' capital constraints increase hedging costs via price-pressure on futur...