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Interest rate differentials, market integration, and the efficiency of commodity futures markets

Author

Listed:
  • Adusei Jumah
  • Sohbet Karbuz
  • Gerhard Runstler

Abstract

Tests for the efficiency of commodity arbitrage typically fail to find cointegration relationships between spot and futures prices and between markets. The reported study investigates the issue for spot and futures prices of cocoa on New York and London markets by means of the Johansen maximum likelihood approach adding interest rates as conditioning variables. The results indicate that interest rates may play an important role in establishing the hypothesized relationships. It is further found that futures prices Granger-cause spot prices, but not vice versa. This is interpreted as evidence for spot prices reacting slowly to new information.

Suggested Citation

  • Adusei Jumah & Sohbet Karbuz & Gerhard Runstler, 1999. "Interest rate differentials, market integration, and the efficiency of commodity futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 101-108.
  • Handle: RePEc:taf:apfiec:v:9:y:1999:i:1:p:101-108
    DOI: 10.1080/096031099332564
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    References listed on IDEAS

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    1. repec:dau:papers:123456789/1227 is not listed on IDEAS
    2. 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.
    3. Ramaprasad Bhar & Shigeyuki Hamori, 2006. "Component structures of agricultural commodity futures traded on the Tokyo Grain Exchange," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 13(1), pages 1-9, March.
    4. repec:dau:papers:123456789/1244 is not listed on IDEAS
    5. 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).
    6. Jumah, Adusei & Kunst, Robert M., 1999. "The Effects of Dollar/Sterling Exchange Rate Volatility on Futures Markets for Coffee and Cocoa," Economics Series 73, Institute for Advanced Studies.
    7. Delphine Lautier & Franck Raynaud, 2012. "Systemic risk in energy derivative markets: a graph theory analysis," Post-Print halshs-00738201, HAL.
    8. Carcano, G. & Falbo, P. & Stefani, S., 2005. "Speculative trading in mean reverting markets," European Journal of Operational Research, Elsevier, vol. 163(1), pages 132-144, May.

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