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Linkages between spot and futures prices: Tests of the Fama-French-Samuelson hypotheses

Author

Listed:
  • John T. Cuddington
  • Arturo L. Va'squez Cordano

    (Division of Economics and Business, Colorado School of Mines)

Abstract

This paper develops GARCH and VEC-MGARCH-based tests of four hypotheses from Fama and French (1988) involving linkages between spot and futures prices --- both their levels and variances. The tests are applied to monthly data for seven metals traded on the London Metal Exchange over the period 1988:11, where available, through 2008:07.

Suggested Citation

  • John T. Cuddington & Arturo L. Va'squez Cordano, 2013. "Linkages between spot and futures prices: Tests of the Fama-French-Samuelson hypotheses," Working Papers 2013-09, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201309
    as

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    File URL: http://econbus-papers.mines.edu/working-papers/wp201309.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, September.
    2. Working, Holbrook, 1933. "Price Relations Between July And September Wheat Futures At Chicago Since 1885," Wheat Studies, Stanford University, Food Research Institute, vol. 9(06), March.
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    4. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
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    6. Holbrook Working, 1948. "Theory of the Inverse Carrying Charge in Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(1), pages 1-28.
    7. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
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    14. Symeonidis, Lazaros & Prokopczuk, Marcel & Brooks, Chris & Lazar, Emese, 2012. "Futures basis, inventory and commodity price volatility: An empirical analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2651-2663.
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    More about this item

    Keywords

    Samuelson Futures Price Hypothesis; Cost-of-Carry Model; Theory of Storage; Cointegration; MGARCH Models; Spot and Futures Prices;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other

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