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Abstract

A futures market for distillers' dried grains (DDGs) was introduced on the Chicago Mercantile Exchange in early 2010, but became inactive only four months after its inception. While many new futures contracts do not develop into high-volume traders, significant interest from DDG cash market participants seemed to indicate that this contract could be successful. This study determines whether factors found in the literature to affect the success of futures contracts may have predicted the ineffectiveness of the DDG contract. We also test the impacts of market participants and the activeness of supporting futures markets, and use the empirical to determine whether the lack of activity in the ethanol futures market may have contributed to the ineffectiveness of the DDG contract. Estimation results indicate that while the existing literature would have predicted a high likelihood of success for a DDG futures contract, accounting for the inactiveness of the ethanol futures market led to the opposite conclusion.

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