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Is the Australian wool futures market efficient as a predictor of spot prices?


  • Jeremy Graham‐Higgs
  • Alicia Rambaldi
  • Brian Davidson


Giles and Goss (1980) have suggested that, if a futures market provides a forward pricing function, then it is an efficient market. In this article a simple test for whether the Australian Wool Futures market is efficient is proposed. The test is based on applying cointegration techniques to test the Law of One Price over a three, six, nine, and twelve month spread of futures prices. We found that the futures market is efficient for up to a six‐month spread, but no further into the future. Because futures market prices can be used to predict spot prices up to six months in advance, woolgrowers can use the futures price to assess when they market their clip, but not for longer‐term production planning decisions. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 565–582, 1999

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  • Jeremy Graham‐Higgs & Alicia Rambaldi & Brian Davidson, 1999. "Is the Australian wool futures market efficient as a predictor of spot prices?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(5), pages 565-582, August.
  • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:5:p:565-582

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    1. Leland, Hayne E, 1985. " Option Pricing and Replication with Transactions Costs," Journal of Finance, American Finance Association, vol. 40(5), pages 1283-1301, December.
    2. Simon Loria & Toan Pham & Ah Boon Sim, 1991. "The Performance of a Stock Index Futures Based Portfolio Insurance Scheme: Australian Evidence," Working Paper Series 5, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    3. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    4. Garry J. Twite, 1998. "The Pricing of Australian Index Futures Contracts with Taxes and Transaction Costs," Australian Journal of Management, Australian School of Business, vol. 23(1), pages 57-81, June.
    5. Bird, Ron & Cunningham, Ross & Dennis, David & Tippett, Mark, 1990. "Portfolio insurance: a simulation under different market conditions," Insurance: Mathematics and Economics, Elsevier, vol. 9(1), pages 1-19, March.
    6. Lo, Andrew W & MacKinlay, A Craig, 1990. "Data-Snooping Biases in Tests of Financial Asset Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 3(3), pages 431-467.
    7. Richard Bookstaber & Joseph A. Langsam, 2000. "Portfolio insurance trading rules," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(1), pages 41-57, January.
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