Price relations among hog, corn, and soybean meal futures

Price relations among hog, corn, and soybean meal futures This paper examines the relations among hog, corn, and soybean meal futures price series using the Perron (1997) unit root test and autoregressive multivariate cointegration models. Accounting for the significant seasonal factors and time trends, we find the three series are cointegrated with one single cointegrating vector, whose coefficients are comparable to the ratios used by the United States Department of Agriculture (USDA). Ex‐post trading simulations that utilize the cointegration results generate significant profits, suggesting that market expectations may not fully incorporate the mean‐reverting tendencies as indicated by the cointegration relations, and that inefficiency exists in these three commodity futures markets. Results from our ex‐ante trading simulations that employ the USDA ratios also provide some evidence in this regard. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:491–514, 2005 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Price relations among hog, corn, and soybean meal futures

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Publisher
Wiley
Copyright
© 2005 Wiley Periodicals, Inc.
ISSN
0270-7314
eISSN
1096-9934
DOI
10.1002/fut.20145
Publisher site
See Article on Publisher Site

Abstract

This paper examines the relations among hog, corn, and soybean meal futures price series using the Perron (1997) unit root test and autoregressive multivariate cointegration models. Accounting for the significant seasonal factors and time trends, we find the three series are cointegrated with one single cointegrating vector, whose coefficients are comparable to the ratios used by the United States Department of Agriculture (USDA). Ex‐post trading simulations that utilize the cointegration results generate significant profits, suggesting that market expectations may not fully incorporate the mean‐reverting tendencies as indicated by the cointegration relations, and that inefficiency exists in these three commodity futures markets. Results from our ex‐ante trading simulations that employ the USDA ratios also provide some evidence in this regard. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:491–514, 2005

Journal

The Journal of Futures MarketsWiley

Published: May 1, 2005

References

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