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Spot and futures commodity markets and the unbiasedness hypothesis - evidence from a novel panel unit root test

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Author Info

  • Robert Czudaj

    ()
    (University of Duisburg-Essen; FOM Hochschule für Oekonomie & Management)

  • Joscha Beckmann

    ()
    (University of Duisburg-Essen)

Abstract

A controversial view of the evolution of commodity markets is that the engagement of speculative capital arguably introduces volatility and price movements unrelated to changes in traditional demand and supply factors. Thus, the efficiency of spot and futures markets is an important topic in this context, as the price of a futures contract in the current period should be an unbiased estimator of next period´s spot price under the joint assumption of risk neutrality and rationality. In this vein, the present study contributes to the literature by applying the novel panel unit root test provided by Demetrescu and Hanck (2012) which simultaneously allows for cross-sectional dependence and unconditional heteroskedasticity. Our findings show that most spot and futures markets for commodities were efficient until the turn of the millennium, but appear to be inefficient thereafter owing to an increase in volatility, which might be attributed to the intense engagement of speculation in commodity markets.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I2-P163.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 2 ()
Pages: 1695-1707

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Handle: RePEc:ebl:ecbull:eb-12-00122

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Related research

Keywords: agriculture; energy; cointegration; commodities; market efficiency; metals; panel; spot and futures markets; unit root;

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References

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  1. Joscha Beckmann & Ansgar Belke & Frauke Dobnik, 2011. "Cross-section Dependence and the Monetary Exchange Rate Mode – A Panel Analysis," Ruhr Economic Papers 0252, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  3. Joseph V. Balagtas & Matthew T. Holt, 2009. "The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 87-105.
  4. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425.
  5. Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2009. "A Speculative Bubble in Commodity Futures Prices? Cross-Sectional Evidence," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53050, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  6. Lombardi, Marco J. & Van Robays, Ine, 2011. "Do financial investors destabilize the oil price?," Working Paper Series 1346, European Central Bank.
  7. Giulio Cifarelli & Giovanna Paladino, 2008. "Oil price Dynamics and Speculation. A Multivariate Financial Approach," Working Papers - Economics wp2008_15.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  8. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
  9. Huang, Bwo-Nung & Yang, C.W. & Hwang, M.J., 2009. "The dynamics of a nonlinear relationship between crude oil spot and futures prices: A multivariate threshold regression approach," Energy Economics, Elsevier, vol. 31(1), pages 91-98, January.
  10. Chevillon, Guillaume & Rifflart, Christine, 2009. "Physical market determinants of the price of crude oil and the market premium," Energy Economics, Elsevier, vol. 31(4), pages 537-549, July.
  11. repec:ebl:ecbull:v:3:y:2008:i:26:p:1-11 is not listed on IDEAS
  12. M. McAleer & J. M. Sequeira, 2004. "Efficient estimation and testing of oil futures contracts in a mutual offset system," Applied Financial Economics, Taylor & Francis Journals, vol. 14(13), pages 953-962.
  13. Kaufmann, Robert K. & Ullman, Ben, 2009. "Oil prices, speculation, and fundamentals: Interpreting causal relations among spot and futures prices," Energy Economics, Elsevier, vol. 31(4), pages 550-558, July.
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Cited by:
  1. Beckmann, Joscha & Czudaj, Robert, 2014. "Volatility transmission in agricultural futures markets," Economic Modelling, Elsevier, vol. 36(C), pages 541-546.

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