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Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure

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 Bessembinder, Hendrik, et al

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Abstract

The authors use the term structure of futures prices to test whether investors anticipate mean reversion in spot asset prices. The empirical results indicate mean reversion in each market they examine. For agricultural commodities and crude oil, the magnitude of the estimated mean reversion is large; for example, point estimates indicate that 44 percent of a typical spot oil price shock is expected to be reversed over the subsequent eight months. For metals, the degree of mean reversion is substantially less but still statistically significant. The authors detect only weak evidence of mean reversion in financial asset prices. Coauthors are Jay F. Coughenour, Paul J. Seguin, and Margaret Monroe Smoller. Copyright 1995 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 50 (1995)
Issue (Month): 1 (March)
Pages: 361-75
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Handle: RePEc:bla:jfinan:v:50:y:1995:i:1:p:361-75

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  3. Daal, Elton & Farhat, Joseph Basheer & Wei, Peihwang P., 2004. "Does futures exhibit maturity effect? New evidence from an extensive set of US and foreign futures contracts," Working Papers 2004-03, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  4. Bahram Adrangi & A. Chatrath & Frank Song & Ferenc Szidarovszky, 2006. "Petroleum spreads and the term structure of futures prices," Applied Economics, Taylor and Francis Journals, vol. 38(16), pages 1917-1929, September. [Downloadable!] (restricted)
  5. Patricia Fraser, Andrew J. McKaig, 2001. "Basis variation and a common source of risk: evidence from UK futures markets," European Journal of Finance, Taylor and Francis Journals, vol. 7(1), pages 39-62, March. [Downloadable!] (restricted)
  6. Jaime Casassus & Pierre Collin-Dufresne & Bryan R. Routledge, 2005. "Equilibrium Commodity Prices with Irreversible Investment and Non-Linear Technology," NBER Working Papers 11864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Elif C. Arbatli, 2008. "Futures Markets, Oil Prices and the Intertemporal Approach to the Current Account," Working Papers 08-48, Bank of Canada. [Downloadable!]
  9. Rodriguez, J.C., 2007. "A Preference-Free Formula to Value Commodity Derivatives," Discussion Paper 2007-92, Tilburg University, Center for Economic Research. [Downloadable!]
  10. Shan Chen & Margaret Insley, 2008. "Regime switching in stochastic models of commodity prices: An application to an optimal tree harvesting problem," Working Papers 08003, University of Waterloo, Department of Economics. [Downloadable!]
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  12. Tomek, William G. & Peterson, Hikaru Hanawa, 2000. "Risk Management In Agricultural Markets: A Survey," 2000 Producer marketing and Risk Management Conference, January 13-14, Orlando, FL 19580, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  13. Frans A. de Roon & Rob W. J. van den Goorbergh & Theo E. Nijman, 2004. "An Anatomy of Futures Returns: Risk Premiums and Trading Strategies," WO Research Memoranda (discontinued) 757, Netherlands Central Bank, Research Department. [Downloadable!]
  14. Daal, Elton & Farhat, Joseph Basheer & Wei, Peihwang P., 2003. "Reexamining the maturity effect using extensive futures data," Working Papers 2003-06, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  15. Richter, Martin & Sørensen, Carsten, 2002. "Stochastic Volatility and Seasonality in Commodity Futures and Options: The Case of Soybeans," Working Papers 2002-4, Copenhagen Business School, Department of Finance. [Downloadable!]
  16. Nijman, T.E. & Roon, F.A. de & Veld, C., 1996. "Pricing term structure risk in futures markets," Discussion Paper 78, Tilburg University, Center for Economic Research. [Downloadable!]
  17. Anders B. Trolle & Eduardo S. Schwartz, 2006. "Unspanned Stochastic Volatility and the Pricing of Commodity Derivatives," NBER Working Papers 12744, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Lin, Chuanyi & Roberts, Matthew C., 2006. "Storability on Modeling Commodity Futures Prices," 2006 Annual meeting, July 23-26, Long Beach, CA 21484, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  19. Kin Lam & May Chun Mei Wong & Wing-Keung Wong, 2005. "New Variance Ratio Tests to Identify Random Walk from the General Mean Reversion Model," Departmental Working Papers wp0514, National University of Singapore, Department of Economics. [Downloadable!]
  20. Power, Gabriel J. & Turvey, Calum G., 2008. "On Term Structure Models of Commodity Futures Prices and the Kaldor-Working Hypothesis," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37608, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
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