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Spot and futures commodity markets and the unbiasedness hypothesis - evidence from a novel panel unit root test

  • Robert Czudaj

    ()

    (University of Duisburg-Essen; FOM Hochschule für Oekonomie & Management)

  • Joscha Beckmann

    ()

    (University of Duisburg-Essen)

A controversial view of the evolution of commodity markets is that the engagement of speculative capital arguably introduces volatility and price movements unrelated to changes in traditional demand and supply factors. Thus, the efficiency of spot and futures markets is an important topic in this context, as the price of a futures contract in the current period should be an unbiased estimator of next period´s spot price under the joint assumption of risk neutrality and rationality. In this vein, the present study contributes to the literature by applying the novel panel unit root test provided by Demetrescu and Hanck (2012) which simultaneously allows for cross-sectional dependence and unconditional heteroskedasticity. Our findings show that most spot and futures markets for commodities were efficient until the turn of the millennium, but appear to be inefficient thereafter owing to an increase in volatility, which might be attributed to the intense engagement of speculation in commodity markets.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 2 ()
Pages: 1695-1707

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Handle: RePEc:ebl:ecbull:eb-12-00122
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  1. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
  2. Kaufmann, Robert K. & Ullman, Ben, 2009. "Oil prices, speculation, and fundamentals: Interpreting causal relations among spot and futures prices," Energy Economics, Elsevier, vol. 31(4), pages 550-558, July.
  3. Giulio Cifarelli & Giovanna Paladino, 2008. "Oil price Dynamics and Speculation. A Multivariate Financial Approach," Working Papers - Economics wp2008_15.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
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  6. Goodwin, Barry K. & Holt, Matthew T. & Prestemon, Jeffery P., 2008. "The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach," MPRA Paper 9684, University Library of Munich, Germany.
  7. Beckmann, Joscha & Belke, Ansgar & Dobnik, Frauke, 2012. "Cross-section dependence and the monetary exchange rate model – A panel analysis," The North American Journal of Economics and Finance, Elsevier, vol. 23(1), pages 38-53.
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  11. repec:ebl:ecbull:v:3:y:2008:i:26:p:1-11 is not listed on IDEAS
  12. Huang, Bwo-Nung & Yang, C.W. & Hwang, M.J., 2009. "The dynamics of a nonlinear relationship between crude oil spot and futures prices: A multivariate threshold regression approach," Energy Economics, Elsevier, vol. 31(1), pages 91-98, January.
  13. Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2009. "A Speculative Bubble in Commodity Futures Prices? Cross-Sectional Evidence," 2009 Conference, April 20-21, 2009, St. Louis, Missouri 53050, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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