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Price Hikes in US Agricultural Commodity Futures Markets: An Empirical Efficiency Test

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  • Armah, Paul W.
  • Shanmugam, Velmurugan P.

Abstract

This paper evaluates how efficient US futures prices have predicted future spot prices since 2006. It uses cointegration and causality methods to assess the efficiency of US commodity futures markets. The cointegration between the spot and futures price is a necessary condition for our definition of market efficiency. It ensures that there exists a long-run equilibrium relationship between the two prices (Ali and Gupta 2011). Causality assists in examining the existence of lead or lag relationships between futures and spot prices in order to make inferences on the directions (unidirectional or bidirectional) of information flow.

Suggested Citation

  • Armah, Paul W. & Shanmugam, Velmurugan P., 2013. "Price Hikes in US Agricultural Commodity Futures Markets: An Empirical Efficiency Test," Journal of Food Distribution Research, Food Distribution Research Society, vol. 44(1), pages 1-9, March.
    • Handle: RePEc:ags:jlofdr:158784
    DOI: 10.22004/ag.econ.158784
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    4. Irwin, Scott H. & Garcia, Philip & Good, Darrel L., 2007. "The Performance of Chicago Board of Trade Corn, Soybean, and Wheat Futures Contracts after Recent Changes in Speculative Limits," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9951, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Jabir Ali & Kriti Bardhan Gupta, 2011. "Efficiency in agricultural commodity futures markets in India," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(2), pages 162-178, August.
    6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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