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Abstract

We study the lead-lag relationship among live cattle futures and negotiated boxed beef cutout prices. To account for temporal differences in the information contained in boxed beef report release, Friday afternoon boxed beef prices are compared to both current day and one-day prior live cattle futures settlement prices. Extensive testing and innovation accounting based on VECM residuals indicate that the futures price leads boxed beef price as the dominant source of information in the fed cattle market. The futures price has a strong predictive influence on the boxed beef price and appears to assimilate fed cattle price information quicker than both contemporaneous and one-day ahead boxed beef prices. Newly-developed price discovery metrics interpreted to allow for a maximum boxed beef effect in the pricing process still identify the dominance of the current futures price, and nearly equal weighting for the lagged one-day futures price.

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