Rational expectations and market efficiency in the U.S. live cattle futures market: The role of proprietary information

✍ Scribed by Matthew P. Schaefer; Robert J. Myers; Stephen R. Koontz

• Publisher: John Wiley and Sons
• Year: 2004
• Tongue: English
• Weight: 135 KB
• Volume: 24
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10124

✦ Synopsis

Abstract

The role of proprietary information in forecasting and market efficiency in the U.S. live cattle futures
market is investigated. Using a unique proprietary data source collected by a private firm, we test whether the
initial estimates in the USDA Cattle on Feed Report and the Knight‐Ridder
pre‐release forecasts are unbiased and efficient forecasts of final revised USDA Cattle on Feed
Report numbers. We then use these results to test whether futures price movements are predictable based
on information in the proprietary data. We also test whether the initial estimates from the Cattle on
Feed Report have new information that moves prices once the information contained in the proprietary
data source has been taken into account. Results suggest that the information contained in the proprietary data
source does have statistically significant explanatory power for forecasting final revised Cattle on Feed
Report numbers and for predicting short‐term price movements of futures contracts. The results
are inconsistent with strong‐form market efficiency in the live cattle futures market. We also find that
the initial estimates in the Cattle on Feed Report still have new information that moves prices
even after accounting for the unique information in both the Knight‐Ridder pre‐release forecasts
and the proprietary data. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:429–451, 2004