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Are Livestock Futures Prices Rational Forecasts?

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  • Shonkwiler, John Scott

Abstract

A measure for evaluating whether live hog and cattle futures prices represent rational forecasts is presented. It is assumed that the mechanisms which generate rational price forecasts possess the same stochastic properties as the cash prices with which they are associated. Using empirical data, tests are constructed which suggest that for contracts more than two months from maturity the rationality hypothesis is generally rejected. These findings are related to other studies of futures performance and the livestock markets.

Suggested Citation

  • Shonkwiler, John Scott, 1986. "Are Livestock Futures Prices Rational Forecasts?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 11(2), pages 1-6, December.
    • Handle: RePEc:ags:wjagec:32245
    DOI: 10.22004/ag.econ.32245
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    References listed on IDEAS

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    1. J. Scott Shonkwiler & Thomas H. Spreen, 1982. "A Dynamic Regression Model of the U.S. Hog Market," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 30(1), pages 37-48, March.
    2. E. C. Pasour, 1980. "A Semi-Strong Form Evaluation of the Efficiency of the Hog Futures Market: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 581-583.
    3. Don B. Panton, 1980. "A Semi-Strong Form Evaluation of the Efficiency of the Hog Futures Market: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 584-584.
    4. Raymond M. Leuthold & Peter A. Hartmann, 1979. "A Semi-Strong Form Evaluation of the Efficiency of the Hog Futures Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 61(3), pages 482-489.
    5. Richard E. Just & Gordon C. Rausser, 1981. "Commodity Price Forecasting with Large-Scale Econometric Models and the Futures Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 63(2), pages 197-208.
    6. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
    7. Toyoda, Toshihisa, 1974. "Use of the Chow Test under Heteroscedasticity," Econometrica, Econometric Society, vol. 42(3), pages 601-608, May.
    8. Larry Martin & Philip Garcia, 1981. "The Price-Forecasting Performance of Futures Markets for Live Cattle and Hogs: A Disaggregated Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 63(2), pages 209-215.
    9. Feige, Edgar L & Pearce, Douglas K, 1976. "Economically Rational Expectations: Are Innovations in the Rate of Inflation Independent of Innovations in Measures of Monetary and Fiscal Policy?," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 499-522, June.
    10. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
    11. Stephen J. DeCanio, 1979. "Rational Expectations and Learning from Experience," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(1), pages 47-57.
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    Cited by:

    1. Kastens, Terry L. & Schroeder, Ted C., 1993. "Expectations of Cattle Feeding Investors in Feeder Cattle Placements," Staff Papers 118159, Kansas State University, Department of Agricultural Economics.
    2. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    3. Kastens, Terry L. & Schroeder, Ted C., 1994. "Cattle Feeder Behavior And Feeder Cattle Placements," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-12, December.
    4. Kastens, Terry L. & Schroeder, Ted C., 1996. "Efficiency Tests Of July Kansas City Wheat Futures," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(2), pages 1-12, December.
    5. Hedtrich, F. & Loy, J.-P. & Müller, R.A.E., 2010. "Prognosen auf Agrarmärkten: Prediction Markets – eine innovative Prognosemethode auch für die Landwirtschaft?," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 45, March.
    6. Novak, Frank S. & Viney, Bruce, 1995. "Alternative Pricing and Delivery Strategies for Alberta Cattle Feeders," Project Report Series 24044, University of Alberta, Department of Resource Economics and Environmental Sociology.

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    Keywords

    Livestock Production/Industries; Marketing;

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