Cointegration and market efficiency in commodities futures markets

Beck, Stacie

doi:10.1080/00036849400000006

Cited by 104 publications

(94 citation statements)

References 35 publications

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“…The study on speculative efficiency of London Metal Exchange (LME) for six base metals during 1985-89 shows that the long-run speculative efficiency cannot be rejected for copper and other three metals. On the other hand, the same hypothesis is rejected for the copper futures contract traded on the LME according to Chowdhury (1991) and Beck (1994). The study by Pantisa Pavabutr and Piyamas Chaihetphon (2010) shows that gold mini futures contracts at Multi Commodity Exchange of India (MCX) contribute to over 30% if price discovery in gold futures trade even though they account for only 2% of trading value on the MCX.…”

Section: Literature Reviewmentioning

confidence: 99%

Future Trading in India and Commodity Price Risk Management: A Pragmatic Study

Reddy

Shekar

Munilakshmi

2014

SDMIMD

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Commodity future markets in India are experiencing unparalleled growth and have attained critical economic significance in the last one decade. On the other hand, instability in commodity prices is becoming an issue of great concern not only for India, but all over the world impacting income, economic growth and a poor adversely. Ever-increasing demand and supply side constraints are adding to the upsurge in prices of metal and agricultural commodities, affecting manufacturers and consumers at the same time. Moreover, farmer participation in the market has been very poor. So the price risk management in commodity is not a cliché but a necessity for the development of future market. In an agriculture based economy like India, commodity derivatives are expected to play a pivotal role in the process of price discovery and risk management. The price discovery in futures markets would not be effective unless spot markets are regulated and integrated. The present paper aims to analyse the performance of futures trading in improvising commodity price risk management in India. The study employs co-integration technique to study the existence of long-term relationship between the spot and future prices of agricultural and metal commodities traded in Indian commodity exchanges. The study also explores the volatility aspect in spot and future prices to test the informational efficiency of the contracts and comment on their suitability for hedging activities. Based on the results, propositions would be made on the nature of speculative conditions and offer suggestions for improvement futures trading in commodities.

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Section: Literature Reviewmentioning

confidence: 99%

Future Trading in India and Commodity Price Risk Management: A Pragmatic Study

Reddy

Shekar

Munilakshmi

2014

SDMIMD

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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%

“…Theoretically, the two prices are the same at expiration since arbitrage will drive them together. In reality, the two prices can differ, and the futures price is often used because spot price data is not generally available for the same grade of commodity delivered at the same time and location as specified in the futures contract (e.g., Gray and Tomek, 1970;Fama and French, 1987;Beck, 1994). The use of futures price data avoids biases introduced by inaccurate spot price data.…”

Section: The Theoretical Model and The 'Basis'mentioning

confidence: 99%

“…3 See for instance Lai and Lai (1991), Fortenbery and Zapata (1993), Beck (1994), Zheng et al (2012). 4 According to the hedging theory originally proposed by Keynes (1930), commodity producers and inventory holders sell futures contracts at a price below the expected future spot price to avoid the price risk associated with their long positions in the underlying commodity.…”

Section: Literature Reviewmentioning

confidence: 99%

“…with E t being the expectation in the futures market in period t. Thus, efficiency implies that F t,T is an unbiased forecast of S T , and that F t,T incorporates all relevant information including past spot and futures prices (Beck, 1994). Formally, tests of efficiency are carried out by regressing the upcoming spot price (S T ) on the current futures price (F t,T ),…”

Section: Forms Of Market Efficiencymentioning

confidence: 99%

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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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Return-volume dynamics in futures markets

Kocagil

Shachmurove

1998

J. Fut. Mark.

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Cointegration and market efficiency in commodities futures markets

Cited by 104 publications

References 35 publications

Future Trading in India and Commodity Price Risk Management: A Pragmatic Study

Future Trading in India and Commodity Price Risk Management: A Pragmatic Study

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

Return-volume dynamics in futures markets

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