market is defined to be efficient if there exists no profitable trading strategy. This has to hold even if all currently available information about the market (excluding inside information) has been skillfully used. The question of whether or not a market satisfies this criterion is of considerable interest as participants can engage in efficient markets at less transaction costs as in markets which necessitate extensive information search.
For a commodity which is traded on spot and on futures markets, the prices on the two respective markets become central to the question of market efficiency. In a futures market hedgers can secure a certain price for a commodity at a future delivery date. The futures price also conveys information about the cash price at the maturity of the futures contract in that it reflects the different cash price expectations of the market participants at the time of contracting. Such information will be particularly important for agents not fully hedged as well as for market participants planning for future production or use. This article will concentrate on information aspects of futures prices and will disregard the security trade aspect.
In the futures market, prices are created via the balancing of supply and demand which themselves are contingent upon the information currently underlying the market process. This knowledge consists partly of past prices from the same market, so that the new prices become part of subsequent information sets. In this sense, trading on futures markets (as on markets in *This article reports research undertaken in a project on the effects of international raw material market regulation on growth and allocation in developing countries funded by the "Deutsche Forschungsgemeinschaft." The author wishes to thank Egbert Gerken and Rolf J. Langhammer for many helpful suggestions.