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Is The Thinly-Traded Butter Futures Contract Priced Efficiently?

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  • Tondel, Fabien
  • Maynard, Leigh J.

Abstract

After over eight years of trading, the Chicago Mercantile Exchange butter futures contract remains thinly traded, possibly impeding price discovery. Pricing efficiency was assessed using cointegration techniques and error correction models. Results suggest that market efficiency could not be rejected up to a two-month forecast horizon. Illiquid markets reduce hedging performance, which in turn discourage liquidity growth.

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File URL: http://purl.umn.edu/34684
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Bibliographic Info

Paper provided by Southern Agricultural Economics Association in its series 2004 Annual Meeting, February 14-18, 2004, Tulsa, Oklahoma with number 34684.

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Date of creation: 2004
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Handle: RePEc:ags:saeaft:34684

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Keywords: Marketing;

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  1. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  2. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
  3. Andrew M. McKenzie & Bingrong Jiang & Harjanto Djunaidi & Linwood A. Hoffman & Eric J. Wailes, 2002. "Unbiasedness and Market Efficiency Tests of the U.S. Rice Futures Market," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(2), pages 474-493.
  4. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
  5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  7. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  8. Manchester, Alden C. & Blayney, Donald P., 2001. "Milk Pricing In The United States," Agricultural Information Bulletins 33612, United States Department of Agriculture, Economic Research Service.
  9. Craig S. Hakkio & Mark Rush, 1987. "Market efficiency and cointegration," Research Working Paper 87-05, Federal Reserve Bank of Kansas City.
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