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Cointegration Analysis Of Unbiased Expectations In The Biffex Freight Futures Market

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  • Haigh, Michael S.

Abstract

The continued survival of the Baltic International Freight Futures Exchange (BIFFEX), based at the London International Financial Futures Exchange (LIFFE), has come as a surprise to many critics of this unique futures market (the only futures contract on a service). The level of trading activity remains low and the number of players limited, and as a result, this has disappointed advocates of the use of derivatives in the shipping market. Therefore, in an effort to explain, at least partially, the reasons for its continued success, this paper tests long-term and short-term unbiasedness in the freight futures market with respect to its ability to unbiasedly predict future spot prices, using cointegration and error-correction techniques. Findings show that results from cointegrating regressions may falsely lead to the acceptance of unbiasedness by ignoring short-term dynamics. Results confirm that the freight futures market is "long-term" efficient but does experience "short-term" deviations. In light of these results, recent market developments are discussed.

Suggested Citation

  • Haigh, Michael S., 1998. "Cointegration Analysis Of Unbiased Expectations In The Biffex Freight Futures Market," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20873, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea98:20873
    DOI: 10.22004/ag.econ.20873
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    References listed on IDEAS

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    1. David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1994. "A Primer on Cointegration with an Application to Money and Income," Palgrave Macmillan Books, in: B. Bhaskara Rao (ed.), Cointegration, chapter 2, pages 9-45, Palgrave Macmillan.
    2. T. Randall Fortenbery & Hector O. Zapata, 1997. "An evaluation of price linkages between futures and cash markets for cheddar cheese," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(3), pages 279-301, May.
    3. Denning, Karen Craft & Riley, William B. & DeLooze, Jeffrey P., 1994. "Baltic freight futures: Random walk or seasonally predictable?," International Review of Economics & Finance, Elsevier, vol. 3(4), pages 399-428.
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