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Reexamining the maturity effect using extensive futures data

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Author Info
Daal, Elton (University of New Orleans)
Farhat, Joseph Basheer (Hashemite University)
Wei, Peihwang P. (University of New Orleans)
Abstract

In his seminal article, Samuelson (1965) proposes the maturity effect that volatility of futures prices should increase as futures contract approaches expiration. This study provides new evidence on the maturity effect by examining a more extensive set of futures contracts over longer period than previous studies: 8451 futures contracts drawn from 74 commodities and four International exchanges, (London, Sydney, Tokyo and Winnipeg Futures), in addition to the U.S. markets over the years from 1960 to 2000. Strong support is found for the maturity effect in agricultural and energy commodities, but not for financial futures. Moreover, negative covariance between spot price and net carry cost appears to be able explain the maturity effect fairly well for commodity futures.

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Paper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2003-06.

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Length: 24 pages
Date of creation: 2003
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Handle: RePEc:uno:wpaper:2003-06

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Related research
Keywords: Futures prices; Volatility; Maturity effect; Samuelson Hypothesis; Futures mark;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

References listed on IDEAS
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  1. Fama, Eugene F & French, Kenneth R, 1988. " Business Cycles and the Behavior of Metals Prices," Journal of Finance, American Finance Association, vol. 43(5), pages 1075-93, December. [Downloadable!] (restricted)
  2. Grammatikos, Theoharry & Saunders, Anthony, 1986. "Futures Price Variability: A Test of Maturity and Volume Effects," Journal of Business, University of Chicago Press, vol. 59(2), pages 319-30, April. [Downloadable!] (restricted)
  3. Chamberlain, Trevor W, 1989. "Maturity Effects in Futures Markets: Some Evidence from the City of London," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(1), pages 90-95, February.
  4. Bessembinder, Hendrik, et al, 1995. " Mean Reversion in Equilibrium Asset Prices: Evidence from the Futures Term Structure," Journal of Finance, American Finance Association, vol. 50(1), pages 361-75, March. [Downloadable!] (restricted)
  5. Anderson, Ronald W & Danthine, Jean-Pierre, 1983. "The Time Pattern of Hedging and the Volatility of Futures Prices," Review of Economic Studies, Blackwell Publishing, vol. 50(2), pages 249-66, April. [Downloadable!] (restricted)
  6. Rutledge, D J S, 1976. "A Note on the Variability of Futures Prices," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 118-20, February. [Downloadable!] (restricted)
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