Futures market efficiency and the time content of the information sets

✍ Scribed by David Bigman; David Goldfarb; Edna Schechtman

• Publisher: John Wiley and Sons
• Year: 1983
• Tongue: English
• Weight: 703 KB
• Volume: 3
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990030307

✦ Synopsis

fficient market prices, according to Fama, "always reflect all available infor-E mation" (1970, p. 383). Competitive conditions will force the price to adjust instantaneously to any new piece of information so that all the available information is reflected in present prices. Only "news" or the arrival of information that could not be predicted previously can therefore bring traders in an efficient market to change their forecasts.

The purpose of this study is to examine the process by which new information that has been accumulated with the passage of time contributes to the predictive power of the estimates of futures prices. The analysis is made by examining the predictive power of commodity futures prices that were quoted at different dates for the same delivery date. This analysis is made for the prices of wheat., soybeans, and corn. Section I presents the analytical model, Sections I1 and I11 discuss the main empirical results, Section IV examines alternative theoretical explanations to the results, and Section V summarizes the conclusions.

I. THE EFFICIEWT MARECET MODEL

Efficiency in futures (as well as asset) markets is commonly defined in terms of the zero expected net profit rule-which states that the game is "fair"-and is trans-We are grateful to this journal's anonymous referees for their helpful comments.