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Two‐step testing procedure for price discovery role of futures prices

Two‐step testing procedure for price discovery role of futures prices rude oil futures prices reflect the opinions of producers, consumers, and speculators about the prices of different commodities in the markets at a later date. To be of value to hedgers, the futures price must respond quickly and accurately to relevant new information. The ability of a futures market to process information has been investigated by many researchers. For instance, Bopp and Sitzer (1987) have studied the crude oil futures markets and find that, while near-term futures prices quoted one month ahead contain significant information about cash prices, longer-term futures prices, quoted more than one month ahead, do not convey information about the current spot price. The same conclusion is obtained by Bopp and Lady (1991) by using a different approach. Even though this conclusion is rather a popular belief, the validity and generality of their methodologies have to be questioned. Their methodologies are basically the ordinary regression analysis that links futures and spot prices, or, lagged futures and spot prices. Their results, therefore, are reasonable only if two price series happen to satisfy the classic assumptions for the regression analysis. However, Yule (1926), Granger and Newbold (1974), and Phillips (1986) point out that the validity of the http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Two‐step testing procedure for price discovery role of futures prices

Quan, Jing
The Journal of Futures Markets , Volume 12 (2) – Apr 1, 1992
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References (30)

Publisher
Wiley
Copyright
Copyright © 1992 Wiley Periodicals, Inc., A Wiley Company
ISSN
0270-7314
eISSN
1096-9934
DOI
10.1002/fut.3990120203
Publisher site
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Abstract

rude oil futures prices reflect the opinions of producers, consumers, and speculators about the prices of different commodities in the markets at a later date. To be of value to hedgers, the futures price must respond quickly and accurately to relevant new information. The ability of a futures market to process information has been investigated by many researchers. For instance, Bopp and Sitzer (1987) have studied the crude oil futures markets and find that, while near-term futures prices quoted one month ahead contain significant information about cash prices, longer-term futures prices, quoted more than one month ahead, do not convey information about the current spot price. The same conclusion is obtained by Bopp and Lady (1991) by using a different approach. Even though this conclusion is rather a popular belief, the validity and generality of their methodologies have to be questioned. Their methodologies are basically the ordinary regression analysis that links futures and spot prices, or, lagged futures and spot prices. Their results, therefore, are reasonable only if two price series happen to satisfy the classic assumptions for the regression analysis. However, Yule (1926), Granger and Newbold (1974), and Phillips (1986) point out that the validity of the

Journal

The Journal of Futures Markets – Wiley

Published: Apr 1, 1992

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