Has Futures Trading Affected the Volatility of Aluminium Transactions Prices?

We consider how aluminium transactions prices have been affected by the development of futures trading in aluminium. Using a series for transactions prices constructed from a trade journal, we establish that both this series and the exchange cash price may be regarded as error-ridden measures of the same latent variables. Furthermore, the error associated with the exchange price has declined over time. Tests provide weak evidence for a modest increase in volatility in the post-producer pricing period, but a VAR model suggests that this may be accounted for by the rapidly decaying "frothiness" of the exchange price, now increasingly reflected in transactions prices