IDEAS home Printed from https://ideas.repec.org/a/bla/jageco/v53y2002i3p513-529.html
   My bibliography  Save this article

Evaluating Commodity Market Efficiency: Are Cointegration Tests Appropriate?

Author

Listed:
  • Neil Kellard

Abstract

This paper investigates the claim that the finding of cointegration between commodity spot and lagged futures rates reflects the existence of commodity arbitrage and not, as is generally accepted, long‐run market efficiency. The methodology of Kellard et al. (1999) is employed to match spot and lagged futures rates correctly for the UK wheat futures contract traded at LIFFE. Bi‐variate analysis shows that spot and lagged futures rates are cointegrated with the vector (1, ‐1), a necessary condition for market efficiency. However, at variance with asymptotic theory, in a tri‐variate VECM estimation, the spot rate, lagged futures rate and lagged domestic interest rate are shown to be cointegrated with the vector (1, −1, 1). The “cointegration” paradox is explained by investigating the relative magnitudes of the forecast error and the domestic interest rate. The small sample results demonstrate that it is impossible to distinguish between the influence of commodity arbitrage and the existence of market efficiency using cointegration‐based tests. In summary, this work implies that such tests are not wholly appropriate for evaluating commodity market efficiency.

Suggested Citation

  • Neil Kellard, 2002. "Evaluating Commodity Market Efficiency: Are Cointegration Tests Appropriate?," Journal of Agricultural Economics, Wiley Blackwell, vol. 53(3), pages 513-529, November.
    • Handle: RePEc:bla:jageco:v:53:y:2002:i:3:p:513-529
    DOI: 10.1111/j.1477-9552.2002.tb00035.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1477-9552.2002.tb00035.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1477-9552.2002.tb00035.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ken Urai, 2006. "Social Recognition and Economic Equilibrium," Discussion Papers in Economics and Business 06-29, Osaka University, Graduate School of Economics.
    2. Li, Jia & Hanrahan, Kevin F. & McErlean, Seamus, 2004. "The Efficiency Of The Futures Market For Agricultural Commodities In The Uk," 2004 Annual meeting, August 1-4, Denver, CO 20203, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Jabir Ali & Kriti Bardhan Gupta, 2011. "Efficiency in agricultural commodity futures markets in India," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(2), pages 162-178, August.
    4. Takeshi Inoue & Shigeyuki Hamori, 2014. "Market efficiency of commodity futures in India," Applied Economics Letters, Taylor & Francis Journals, vol. 21(8), pages 522-527, May.
    5. Robert Czudaj & Joscha Beckmann, 2012. "Spot and futures commodity markets and the unbiasedness hypothesis - evidence from a novel panel unit root test," Economics Bulletin, AccessEcon, vol. 32(2), pages 1695-1707.
    6. Roseli da Silva & Rodrigo Takeuchi, 2008. "Uma análise empírica de eficiência relativa nos mercados futuro e à vista de açúcar," Working Papers 08_06, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
    7. Jerry Coakley & Jian Dollery & Neil Kellard, 2011. "Long memory and structural breaks in commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(11), pages 1076-1113, November.
    8. Sushil Mohan & James Love, 2004. "Coffee futures: role in reducing coffee producers' price risk," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(7), pages 983-1002.
    9. Zhuo Chen & Bo Yan & Hanwen Kang & Liyu Liu, 2023. "Asymmetric price adjustment and price discovery in spot and futures markets of agricultural commodities," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 139-162, February.
    10. Beckmann, Joscha & Belke, Ansgar & Czudaj, Robert, 2014. "Regime-dependent adjustment in energy spot and futures markets," Economic Modelling, Elsevier, vol. 40(C), pages 400-409.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jageco:v:53:y:2002:i:3:p:513-529. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0021-857X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.