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The Samuelson hypothesis in futures markets: An analysis using intraday data

  • Duong, Huu Nhan
  • Kalev, Petko S.

This paper considers the Samuelson hypothesis, which argues that the futures price volatility increases as the futures contract approaches its expiration. Utilizing intraday data from 20 futures markets in six futures exchanges, we find strong support for the Samuelson hypothesis in agricultural futures. However, the Samuelson hypothesis does not hold for other futures contracts. We also provide supporting evidence that the 'negative covariance' hypothesis is the key factor for the empirical support of the Samuelson hypothesis. In addition, our findings remain largely unaltered even after we control for seasonality and liquidity effects.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 4 (April)
Pages: 489-500

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:4:p:489-500
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  1. David Kenyon & Kenneth Kling & Jim Jordan & William Seale & Nancy McCabe, 1987. "Factors affecting agricultural futures price variance," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 7(1), pages 73-91, 02.
  2. Grammatikos, Theoharry & Saunders, Anthony, 1986. "Futures Price Variability: A Test of Maturity and Volume Effects," The Journal of Business, University of Chicago Press, vol. 59(2), pages 319-30, April.
  3. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October.
  4. Thomakos, Dimitrios D. & Wang, Tao, 2003. "Realized volatility in the futures markets," Journal of Empirical Finance, Elsevier, vol. 10(3), pages 321-353, May.
  5. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
  6. Easley, David & Kiefer, Nicholas M & O'Hara, Maureen, 1997. "One Day in the Life of a Very Common Stock," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 805-35.
  7. Anderson, Ronald W & Danthine, Jean-Pierre, 1983. "The Time Pattern of Hedging and the Volatility of Futures Prices," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 249-66, April.
  8. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
  9. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  10. 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.
  11. Jeff Fleming, 2001. "The Economic Value of Volatility Timing," Journal of Finance, American Finance Association, vol. 56(1), pages 329-352, 02.
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