A Rational Expectations Model of Time Varying Risk Premia in Commodities Futures Markets: Theory and Evidence

Beck, Stacie

doi:10.2307/2526954

Cited by 38 publications

(24 citation statements)

References 21 publications

(12 reference statements)

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“…In general, the evidence shows that agents do not respond to predictable fluctuations in price variance in those markets where they exist. This is consistent with Beck's (1993) results.…”

Section: Datasupporting

confidence: 93%

“…Bollerslev et al, 1992). However, it has been shown in Beck (1993) that the Muth (1961) rational expectations model of commodities markets implies there is an ARCH process in commodities prices. In particular, there is an ARCH process when the commodity is storable but not when it is non-storable.…”

Section: Introductionmentioning

confidence: 99%

“…1 However, only Beck (1993) derived hypotheses for the time series behaviour of the price variance based on Muth's model. In that paper, a futures market model was developed and tested on bi-monthly futures price data for five commodities.…”

Section: Introductionmentioning

confidence: 99%

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Autoregressive conditional heteroscedasticity in commodity spot prices

Beck

2001

J of Applied Econometrics

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“…In general, the evidence shows that agents do not respond to predictable fluctuations in price variance in those markets where they exist. This is consistent with Beck's (1993) results.…”

Section: Datasupporting

confidence: 93%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Autoregressive conditional heteroscedasticity in commodity spot prices

Beck

2001

J of Applied Econometrics

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“…However, efficient markets may reject the above joint hypothesis for a number of reasons, some of which include the presence of a risk premium 4 (Krehbiel and Adkins, 1993;Beck, 1993), the inability of the futures price to reflect all publicly available information (Beck, 1994), and the inefficiency of agents as information processors (Kaminsky and Kumar, 1990). Also, as noted for example by Fortenbery and Zapata (1993), lack of efficiency can occur for commodities in which returns to storage or transportation are non-stationary.…”

Section: Forms Of Market Efficiencymentioning

confidence: 99%

Back to the Futures: An Assessment of Commodity Market Efficiency and Forecast Error Drivers

Algieri

Kalkuhl

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe role of futures markets in stabilizing spot prices has been extensively discussed. Nevertheless, the ability of these markets to achieve the stabilizing function significantly depends on whether they are 'efficient' in the sense that futures prices 'fully reflect' the available information. The purpose of this study is first to gauge the extent to which futures markets for a set of traded commodities can be considered efficient in predicting spot prices. We then go beyond traditional analyses of efficiency and assess the relative forecasting performance of futures markets; i.e., the difference between the realization and prediction of future spot prices, and what factors affect these forecast errors. The results of the analysis show that maize, soybeans, and wheat markets are not informationally efficient, so that investors can make outsize profits. We find that short-term speculation, measured by the scalping index, increases the noises in the information formation process, thus increasing forecast errors. Conversely, long-term speculation, proxied by the Working-T index and the speculative pressure index, reduces forecast errors although their quantitative effect is negligible. Other relevant factors that drive forecast errors up are a high level of realized price volatility, the lack of liquidity in the market, and a longer contract maturity horizon.

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“…Furthermore, Beck (1993) builds upon the work by Muth (1961) and provides a theoretical basis for treating the variance of storable commodities as serially correlated which suggests that commodity prices may exhibit conditional heteroscedasticity. The presence of storage is instrumental in ensuring that the price variance in one period directly affects inventory variance which in turn is transmitted to next period's price variation.…”

Section: Introductionmentioning

confidence: 99%

A Staggered Pricing Approach to Modeling Speculative Storage: Implications for Commodity Price Dynamics

Assa

2013

SSRN Journal

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A Rational Expectations Model of Time Varying Risk Premia in Commodities Futures Markets: Theory and Evidence

Cited by 38 publications

References 21 publications

Autoregressive conditional heteroscedasticity in commodity spot prices

Autoregressive conditional heteroscedasticity in commodity spot prices

Back to the Futures: An Assessment of Commodity Market Efficiency and Forecast Error Drivers

A Staggered Pricing Approach to Modeling Speculative Storage: Implications for Commodity Price Dynamics

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