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Testing Efficiency Of The Copper Futures Market: New Evidence From London Metal Exchange

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Author Info

  • Dimitris Kenourgios

    (Athens University of economics & Business)

  • Aristeidis Samitas

    (University of Aegean)

Abstract

This paper investigates the joint hypothesis of market efficiency and unbiasedness of futures prices for the copper futures contract traded on the London Metal Exchange. This contract is of particular importance given the usage and properties of the underlying commodity and its highest share of trading during the last decade, in an exchange which is the centre of the world’s trading in copper. The data contain prices from two different copper futures contracts (three and fifteen months maturity) covering the decade of 1990s, a very volatile and turbulent period for the copper market worldwide. Unlike previous studies, it tests for both long-run and short-run efficiency using cointegration and error correction model. Our results show that the market is not efficient and do not provide unbiased estimates of future copper spot prices, which has important implications for the users of this market.

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File URL: http://128.118.178.162/eps/fin/papers/0512/0512010.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0512010.

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Length: 18 pages
Date of creation: 09 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0512010

Note: Type of Document - pdf; pages: 18
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Web page: http://128.118.178.162

Related research

Keywords: Copper Futures Market; Market Efficiency; Unbiasedness Hypothesis; London Metal Exchange;

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References

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  1. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  2. Bilson, John F O, 1981. "The "Speculative Efficiency" Hypothesis," The Journal of Business, University of Chicago Press, vol. 54(3), pages 435-51, July.
  3. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  4. 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.
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  8. Craig S. Hakkio & Mark Rush, 1987. "Market efficiency and cointegration," Research Working Paper 87-05, Federal Reserve Bank of Kansas City.
  9. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  10. Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
  11. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  12. MacDonald, Ronald & Taylor, Mark P, 1988. "Testing Rational Expectations and Efficiency in the London Metal Exchange," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(1), pages 41-52, February.
  13. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  14. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  15. Sephton, Peter S. & Cochrane, Donald K., 1990. "A note on the efficiency of the London metal exchange," Economics Letters, Elsevier, vol. 33(4), pages 341-345, August.
  16. Hall, S G, 1991. "The Effect of Varying Length VAR Models on the Maximum Likelihood Estimates of Cointegrating Vectors," Scottish Journal of Political Economy, Scottish Economic Society, vol. 38(4), pages 317-23, November.
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Cited by:
  1. Prasad Bhattacharaya & Harminder Singh, 2006. "Estimating Forward Pricing Function: How Efficient is Indian Stock Index Futures Market?," Accounting, Finance, Financial Planning and Insurance Series 2006_02, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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