Testing the rationality of futures prices for selected LDC agricultural exports

✍ Scribed by Indira Rajaraman

• Publisher: John Wiley and Sons
• Year: 1986
• Tongue: English
• Weight: 1000 KB
• Volume: 6
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990060403

✦ Synopsis

hile the rationality of futures prices in financial and exchange markets has W received considerable empirical attention, commodity futures have been comparatively disregarded. Section I of this article contains a brief summary of the literature on tests of rationality on commodity futures. Such attention as commodity futures (on U.S. Exchanges) have received, has been confined largely to those produced domestically-wheat, corn, soybeans and potatoes. With the single exception of the study by Kofi (1973) which covered cocoa and coffee among other commodities (reviewed in Section I), no attention has been paid to futures prices on U.S. exchanges for commodities that are domestically consumed but not domestically produced.

The lacuna is a curious one in view of the theoretical questioning of the welfare implications of price intervention as a means of reducing price uncertainty faced by primary exports from LDCs to the U.S. and other industrial markets. On the one hand, stabilization through price intervention is now an accepted UNCTAD policy, with agreement on a Common Fund for 10 core commodities having been concluded in June 1980.' On the other, there continue to be questions about the welfare and other implications of price floor or band schemes (Newbery and Stiglitz, 1981). Most recently, Salant (1983) has demonstrated theoretically the vulnerability 'However, at the time of writing the Agreement had not yet been ratified by the necessary number of countries to come into force.