Efficiency of commodity futures: A vector autoregression analysis

✍ Scribed by Giorgio Canarella; Stephen K. Pollard

• Publisher: John Wiley and Sons
• Year: 1985
• Tongue: English
• Weight: 953 KB
• Volume: 5
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990050107

✦ Synopsis

as applied to agricultural commodity futures markets. This reexamination appears to be warranted for two reasons. First, the conclusion drawn by previous researchers in studying the efficient market hypothesis for a variety of agricultural commodity futures markets are not uniform. Specifically, these studies do not provide sufficient evidence to support or reject (1) the efficiency and unbiasedness properties of futures prices as predictors of future spot prices, and (2) the rationality of expectations of futures market participants. Second, these studies have all employed single-equation techniques to test the EMH. However, Hanson and Hodrick (1980, in their studies of foreign exchange markets, have demonstrated the inefficiency of single-equation methods to test accurately the EMH. Hence, researchers modeling futures markets and/or futures market participant behavior in structural models of the agricultural sector or crop-specific subsectors may have been misled by the findings in these past studies.

In this article we address these two unsettled issues by testing the EMH within *We gratefully acknowledge the assistance of Stephen E. Ross in undertaking the computer processing of the 'The efficient market hypothesis is the proposition that the futures price at time t for delivery in time L + k 'For example, see, Stevenson and Bear (1970, Garcia 3Past researchers have assumed the rationality of traders' expectations, but have not explicitly tested the REH. data and development of the modified FIML program used in this article. is an unbiased and efficient predictor of the spot price at time t + k. .