Forecast Encompassing And Futures Market Efficiency: The Case Of Milk Futures
The traditional necessary condition for futures market inefficiency is the existence of alternative forecasting methods that produce mean squared forecast errors smaller than the futures market. Here, a more exacting requirement for futures market efficiency is proposedforecast encompassing. Using the multiple forecast encompassing procedure of Harvey and Newbold, forecast encompassing is tested with the CME fluid milk futures contract. Time series models and experts at the USDA provide the competing forecasts. The results suggest that the CME fluid milk futures do not encompass the information contained in the USDA forecasts at a two-quarter forecast horizon. While the competing forecasts generate positive revenues, it is unlikely that trading returns would exceed transaction costs in this relatively new futures market.
|Date of creation:||2004|
|Contact details of provider:|| Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202|
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. W. Hafer & Scott E. Hein, 1989. "Comparing futures and survey forecasts of near-term Treasury bill rates," Review, Federal Reserve Bank of St. Louis, issue May, pages 33-42.
- Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
- Francis X. Diebold & Robert S. Mariano, 1994.
"Comparing Predictive Accuracy,"
NBER Technical Working Papers
0169, National Bureau of Economic Research, Inc.
- Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-263, July.
- Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
- Bessler, David A. & Brandt, Jon A., 1992. "An analysis of forecasts of livestock prices," Journal of Economic Behavior & Organization, Elsevier, vol. 18(2), pages 249-263, July.
- Ashley, Richard, 2003. "Statistically significant forecasting improvements: how much out-of-sample data is likely necessary?," International Journal of Forecasting, Elsevier, vol. 19(2), pages 229-239.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea04:20267. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.