Change in Trading Rules and Its Impact on the Distributional Properties of Commodity Futures

• Activity Number: 373
• Type: Contributed
• Date/Time: Tuesday, August 11, 2015 : 10:30 AM to 12:20 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Yoshinori Kawasaki* and Yoshimitsu Aoki
• Companies: Institute of Statistical Mathematics and Quick Corp.
• Keywords: commodity futures ; price movement limit ; circuit breaker system ; heavy tail ; asymmetric distribution ; MCMC

Abstract

Until April 2009, Tokyo Commodity Exchange (TOCOM) had limited price movement in such a way that the commodity-wise caps and floors were determined dependent on recent price levels. In May 2009, TOCOM changed their transaction rules and introduced a circuit breaker system. This institutional conversion has entirely altered the distributional properties of the price difference of commodity futures. The bottom line is that the tail-heaviness in the downside has come to be observed under the circuit breaker system. For price limitation regime data, we fit autoregressive models to the censored price difference series which inevitably exploits MCMC technique. Generally, normal distribution seems appropriate and no severe asymmetry is found. Under the circuit breaker system, considering the asymmetry in the empirical distribution of price difference series, we fit models driven by (1) normal, (2)asymmetric Laplace, and by (3) the half-exponential half-normal distribution. Our conclusion is that the half-exponential half-normal distribution fits best for the most of commodity futures in TOCOM.