Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Examining the validity of a test of futures market efficiency

Examining the validity of a test of futures market efficiency he efficiency of futures pricing has been investigated using the model: S,+i = a + bF:+i + e,+i (1) where St+i is the spot price at t i; F:+i is the price at t for the futures coni; e,+i is a random disturbance with mean zero and tract maturing at t : ; variance a and a and b are fixed parameters. Pricing is considered efficient if a = 0 and b = 1. However, empirical estimates of the a’s have generally been positive and the b’s less than one, at least for futures contracts several weeks before maturity (e.g., Bigman, Goldfarb and Schechtman (1983)’ Leuthold (1974)). From such results it has been concluded that futures prices provide inefficient (or biased) estimates of the futures (or spot) prices at contract maturity. In an article in this journal, Maberly (1985) disagrees with the conclusion that a^ > 0 and b < 1(where denotes an estimate) imply that futures pricing is inefficient. He argues that the empirical findings are the result of applying ordinary least squares (OLS) to censored data. He believes that an inherent restri9ion on the dependent variable in Equation (1) is responsible for a^ > 0 and http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Examining the validity of a test of futures market efficiency

Loading next page...
 
/lp/wiley/examining-the-validity-of-a-test-of-futures-market-efficiency-N3AJNS0V7D

References (8)

Publisher
Wiley
Copyright
Copyright © 1988 Wiley Periodicals, Inc., A Wiley Company
ISSN
0270-7314
eISSN
1096-9934
DOI
10.1002/fut.3990080309
Publisher site
See Article on Publisher Site

Abstract

he efficiency of futures pricing has been investigated using the model: S,+i = a + bF:+i + e,+i (1) where St+i is the spot price at t i; F:+i is the price at t for the futures coni; e,+i is a random disturbance with mean zero and tract maturing at t : ; variance a and a and b are fixed parameters. Pricing is considered efficient if a = 0 and b = 1. However, empirical estimates of the a’s have generally been positive and the b’s less than one, at least for futures contracts several weeks before maturity (e.g., Bigman, Goldfarb and Schechtman (1983)’ Leuthold (1974)). From such results it has been concluded that futures prices provide inefficient (or biased) estimates of the futures (or spot) prices at contract maturity. In an article in this journal, Maberly (1985) disagrees with the conclusion that a^ > 0 and b < 1(where denotes an estimate) imply that futures pricing is inefficient. He argues that the empirical findings are the result of applying ordinary least squares (OLS) to censored data. He believes that an inherent restri9ion on the dependent variable in Equation (1) is responsible for a^ > 0 and

Journal

The Journal of Futures MarketsWiley

Published: Jun 1, 1988

There are no references for this article.