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The Role of Futures in Daily Forward Pricing

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  • Covey, Ted
  • Bessler, David A.

Abstract

Previous research has explored whether a commodity's own-futures price could be used to improve the prediction of its delivery-date spot prices. An additional perspective is whether prices from various futures contracts (both own as well as other commodity and financial) could be used to improve predictions of day-to-day spot prices. Time series models (which could have been implemented by cash-market participants over the observation period) were used to make one- to ten-step-ahead post-sample forecasts of daily spot prices for Texas-Oklahoma slaughter cattle. A model relying on both cash and nearby own-futures price information was shown to significantly improve predictions of daily spot prices over those predictions made by a model relying on a nonfutures (cash) information set.

Suggested Citation

  • Covey, Ted & Bessler, David A., 1991. "The Role of Futures in Daily Forward Pricing," 1991 Annual Meeting, August 4-7, Manhattan, Kansas 271282, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea91:271282
    DOI: 10.22004/ag.econ.271282
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    References listed on IDEAS

    as
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