Investor demand and spot commodity prices: Reply

In a recent article (Tilton et al., 2011), we argue that even when investor stocks are declining an increase in investor demand can cause a commodity's price to rise, a conclusion that is both contrary to conventional wisdom and counter-intuitive. In his comment on our article, Olle Östensson (2011) challenges this finding. After assessing his concerns in this reply, we maintain that our original finding is valid: investor demand can be driving commodity prices higher even when investor stocks are falling.     

Investor demand and spot commodity prices

The on-going debate over the influence of investor demand on spot commodity prices largely attempts to assess this influence by measuring the growth in investor demand in recent years. Given the serious data problems that plague such analyses, this article pursues another approach in the hope of providing useful insights into the impact of investor demand on spot commodity prices. It focuses on the mechanisms by which investor demand affects spot prices, and in particular on two questions. First, how does an increase in investor demand on the futures markets affect the spot market and spot price? Second, when investor demand is increasing and pushing a commodity's price up, do physical stocks of the commodity also have to be rising, as economists and others widely assume?On the first question, the article concludes that a surge in investor demand raising prices on the futures markets will have a direct and comparable effect on the spot market prices when these markets are in strong contango. However, when markets are in weak contango or backwardation, price movements in the futures markets have a much looser effect on spot prices. As a result, changes in investor demand on the futures markets may have little or no influence on spot prices in the absence of a strong contango. Instead, changes in fundamentals (that is, producer supply and consumer demand) and possibly changes in investor demand taking place directly on the spot market largely determine the spot price at such times.On the second question, the article shows that investor demand can be pushing up a commodity's price even when investor stocks are falling, despite the widespread presumption to the contrary.     

Comment: Investor demand and spot commodity prices

Tilton et al. claim in their article “Investor demand and spot commodity prices” to show that “investor demand can be pushing up a commodity's price even when investor stocks are falling.” In the present comment, it is argued that in both the cases described by Tilton et al., investors are supplying the market, putting physical material into it, rather than adding to demand. Thus, the reasoning by Tilton et al. is not concerned with the phenomenon referred to in the traditional theory, where, in the absence of changes in demand and supply fundamentals, prices rise as a result of increased investor demand for futures contracts.     

Reply: Investor demand and spot commodity prices

In a recent article (Tilton, Humphreys, and Radetzki, 2011), Tilton et al. argue that even when investor stocks are declining an increase in investor demand can cause a commodity's price to rise. They contend that this conclusion, which is based on two hypothetical examples, is both contrary to conventional wisdom and counter-intuitive. In my comment on the article (Olle Östensson, 2011), I challenged this finding. In a reply to my article, Tilton et al. maintain that their original finding is valid: investor demand can be driving commodity prices higher even when stocks are falling. In my present reply, I contend that their argument with respect to the first example confuses the actions of a minority of investors with those of all investors and is well accommodated within the framework of traditional theory. I further argue that their second example rests on an assumption regarding investor behavior that is unproven and that in any case falls outside the framework of analysis of futures markets.     

Taxing mineral resource projects : Papua New Guinea, Indonesia and the Philippines

Within the context of a case study of three Asia/Pacific countries' mineral taxation regimes, this article examines the impact of individual fiscal instrucments, and the total fiscal package, on investor risk perceptions, investor returns and government receipts. It shows that under conditions of uncertainty and risk aversion on the part of investors, significant gains in expected government revenues can be achieved without seriously affecting the investors' ex-ante assessments of projects by a judicious selection and mix of fiscal instruments.     

Market reactions to Australian boutique resource investor presentations

This paper examines the market reactions to 817 investor presentations by 326 Australian resource firms and finds evidence suggesting these events are informative. Furthermore, the positive returns do not reverse over the following 15 days, which contrasts with previous investor presentation research. However, consistent with the prior literature, extended long run cumulative abnormal returns are not significantly different from zero. This paper also documents stronger reactions to first time presenting firms, presentations that are announced to the market and firms exhibiting at the Africa Downunder and Excellence in Oil & Gas conferences. There are also stronger reactions for firms with lower ownership concentration. Examining boutique resource firm investor presentations adds to the existing disclosure and dissemination literature due to the presence of relatively high information asymmetry in the extractive industries, a unique setting, which contrasts with previous studies.     

INVESTOR OWNED VS. PUBLICLY OWNED WATER AGENCIES: AN EVALUATION OF THE PROPERTY RIGHTS THEORY OF THE FIRM1

ABSTRACT: The property rights theory of the firm is evaluated by comparing the cost structures of a sample of water agencies under two alternative modes of ownership - public and investor owned. On the basis of the sample, investor owned water agencies appear to have lower cost structures.     

News sentiment to market impact and its feedback effect

Although market feedback on investor sentiment effect has been conceptually identified in the existing finance literature and investment strategies have been designed to explore this effect, there lacks systematic analysis in a quantified manner on such effect. Digitization of news articles and the advancement of computational intelligence applications have led to a growing influence of news sentiment over financial markets in recent years. News sentiment has often been used as a proxy for gauging investor sentiment and reflecting the aggregate confidence of the society toward future market. Previous studies have primarily focused on elucidating the unidirectional impact of news sentiment on market returns and not vice versa. In this study, we analyze more than 12 millions of news articles and document the presence of a significant feedback effect between news sentiment and market returns across the major indices in the US financial market. More specifically, we find that news sentiment exhibits a lag-5 effect on market returns and conversely market returns elicit consistent lag-1 effects on news sentiment. This aligns well with our intuition that news sentiment drives trading activity and investment decisions. In turn, heightened investment activity further stimulates involuntary responses, which manifest in the form of more news coverage and publications. The evidence presented highlights the strong correlation between news sentiment and market returns and demonstrates the benefits of advancing knowledge in data-driven modeling and its interaction with market movements.     

Barriers to investment in third world mineral industries

This article looks at some of the barriers that have distorted the global flow of capital in the mining industry. The perceived threat of nationalization is discussed and Chile's expropriation of US copper mining companies in 1971 is examined. Political instability, leading not only expropriation but to loss of title, altered tax laws, and voided contracts, is also cited as a factor affecting investor confidence. Finally, inadequate infrastructure is regarded as a further barrier to development of Third World mineral industries.     

国际投资风险防范分析与策略

国际投风险的防范是国际投资中一个十分重要的问题。本文分析了国际投资风险的内涵，论述了国际投资风险分析的主要内容，指出了国际投资风险防范的基本策略和投资者风险自我防范策略。     

What drives large South African corporations to invest in sub‐Saharan Africa? CEO's perspectives and implications for FDI policies

Foreign direct investment (FDI) flowing into Africa is highly diverse in terms of the origin of the investors, size of the firms, and the sectors of activity. The motivations and factors driving firms' decisions to invest in Africa are equally diverse. A direct survey of senior management in South African firms that are operating in sub-Saharan Africa reveals that the drivers of foreign investment as well as the risks and the strategies to overcome them differ markedly between sectors. A further finding is that there is a limited pool of FDI promotion policies and incentives that governments can institute that are effective in impacting South African corporations' investment decisions. As a consequence, broad-based FDI promotion policies aimed at attracting FDI across all investor groups are likely to have limited impact in attracting FDI from any particular investor group, or in attracting any FDI from multinational companies similar to the South African companies studied here. Such broad based policies probably need to be complemented with policies targeting those specific firms or sectors which countries hope to attract.     

Mining investment promotion

Attitudes in developing countries with respect to private investment in natural resources have changed substantially in recent years. Countries must now compete for such investment by ensuring that policies pertaining to state participation, financing, marketing and taxation of mining ventures provide the investor with returns that are commensurate with the risks taken. Governments must also be prepared to help the investor compete on world markets through lower capital and operating costs. This entails granting exemptions of customs, excise and value added taxes as well as providing for policies on taxation, government participation, industrial relations, safety and environment, and procurement and personnel that are in line with international mining industry standards. Efforts to promote mining sector investment through the strengthening of technical ministries, preparation of basic geological and project information, investment symposia and an international mining council can be helpful in bringing opportunities to the attention of the investment community. But, these efforts can only succeed if the policy changes now being put into place continue to evolve and contribute to an atmosphere in which entrepreneurship and private investment can flourish.     

对于土地使用权升值问题的探讨

基于经济和社会等方面的原因，土地所有权的价格一般会不断上涨，固定年期土地使用权价格也会随之上升。但受让土地使用权价格存在类似折旧的现象。投资人能否从地价普遍上涨中获得增值收益，取决于土地所有权增值比率、土地还原利率、剩余使用年期等多种因素。     

中国静脉产业园区发展模式与案例研究

本研究对静脉产业园区概念进行解析,梳理了我国静脉产业园的建设概况.从园区建设内容与流程、园区建设布局形式、园区投资建设主体、园区运营管理模式等4大要素研究了静脉产业因区的发展模式.最后以苏州和呼和浩特两地的静脉产业园区建设为例,介绍了综合类静脉产业园区的发展典范.     

生态环境导向的开发(EOD)投融资模式创新需求

生态环境导向的开发模式是解决传统生态治理项目公益性强而经济效益较差的重要手段。本研究总结了“EOD+PPP”模式、投资人+EPC模式、ABO模式、政府专项债券和创新型贷款模式等五项模式的特点与应用案例,并从地方政府支出角度剖析了各种模式的适用条件。本文认为,当前 EOD模式的运行难点包括:产业培育周期较长,投资回报不确定性较大;开发存在诸多风险因素,缺少标准化制度体系;金融机构缺乏积极性,配套投融资考评体系建设不足。最后提出 EOD模式创新的政策建议,通过关联产业一体化实施、协同生态价值实现机制、强化风险管控评估、规范应用投融资模式为完善EOD投融资模式创新提供思路。     

MINING AGREEMENTS IN DEVELOPING COUNTRIES-ISSUES OF FINANCE AND TAXATION

This article continues a Forum series on recent trends in mining contracts between host countries and foreign investors begun in the April 1977 issue. Based on intensive research carried out for the preparation of a book on Mining Ventures in Developing Countries , published recently in the Federal Republic of Germany, the authors discuss sources of finance, institutions, exchange controls and special accounts, royalties, income taxation, and equity participation. They conclude that taxation is most likely to remain the principal source of income; equity participation should be evaluated carefully as it does not automatically guarantee maximum benefits. The combination of taxes and royalties provide a steady flow of income. An increase of the total tax burden beyond a certain percentage may be counterproductive for the host country, as it encourages the investor to look for less controllable means of shifting profits or discourages investment for exploration and development.     

Trends in foreign investment : Agreements in the resources industry

Recent agreements between host country governments and foreign investors in the resource industries reflect an effort to meet the objectives of both parties. In some cases majority government ownership is combined with management control and the right of veto on certain policy questions by the foreign investor. Imaginative tax formulas are built into agreements that combine the principle of excess profits taxes with that of a minimum DCF rate of return. Expropriation risk is being limited by employing a high debt-equity ratio. Foreign investors are agreeing to programmes and policies that promote host country economic and social development, while host country governments are quaranteeing foreign investors against changes in laws that would affect their profits.     

NEW DEVELOPMENTS IN THIRD WORLD MINING AGREEMENTS

The long-term trend toward mineral resource development agreements that reflect the desires of developing country governments as well as those of foreign investors is not always clear-cut. At times, conditions in the market for a particular mineral and general financial conditions may affect the balance of bargaining power between governments and investors. Mr Zorn's analysis of two recent copper agreements, in Panama and Papua New Guinea, shows that foreign investors have been able to achieve favorable provisions for the early return of capital and for ensuring investor control over key management decisions. At the same time, the host governments have won provisions that may increase their 'take' from the projects in the longer term.     

Capital allowance schemes for mining projects in LDCs

The capital allowance structure for mining projects in developing countries affects the supply price of investment by determining the payback period, reinvestment and the timing of government receipts. Using the capital allowance structures of Sierra Leone, Tanzania, Zambia, Botswana, Papua New Guinea and Malaysia, the article develops a financial model and examines the effect of capital allowances on foreign investor and host government cash flows under various cost-price conditions. The study stresses the importance to governments of making accelerated depreciation a flexible tool to trade off against other elements in the fiscal package. From the government viewpoint, faster write-offs of capital are preferable to a tax holiday. The article places particular emphasis on evaluating the relationship between capital allowances, income tax and a rent resource tax.     

政府环保类引导基金的运行管理模式研究

本文基于国内已有的相关政府引导基金和环保基金的运行管理模式,经分析和比较提出适合中央和地方层面环保类引导基金的运行管理模式。除了要符合基金运作的一般规律,本文认为中央层面设立政府环保类引导基金适合契约制形式,引导基金内只有中央财政出资,按照母基金参股子基金的方式来运作,同时达到撬动社会资本和引入先进基金管理公司的目的;地方层面设立相应基金适合采用有限合伙制形式,直接吸引社会资本与政府共同建立引导基金,投资方式以直接投资为主、参股子基金为辅,可以发挥金融机构的融资优势和环保类专业机构的技术和经验优势。