Price relations among hog, corn, and soybean meal futures
✍ Scribed by Qingfeng “Wilson” Liu
- Publisher
- John Wiley and Sons
- Year
- 2005
- Tongue
- English
- Weight
- 181 KB
- Volume
- 25
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
This paper examines the relations among hog, corn, and soybean meal futures price series using the Perron (1997) unit root test and autoregressive multivariate cointegration models. Accounting for the significant seasonal factors and time trends, we find the three series are cointegrated with one single cointegrating vector, whose coefficients are comparable to the ratios used by the United States Department of Agriculture (USDA). Ex-post trading simulations that utilize the cointegration results generate significant profits, suggesting that market expectations may not fully incorporate the mean-reverting tendencies as indicated by the cointegration relations, and that inefficiency exists in these three commodity futures markets. Results from our ex-ante trading simulations that employ the USDA ratios also provide some evidence in this regard.