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Linkages between spot and futures prices: Tests of the Fama-French-Samuelson hypotheses

Author

Listed:
  • John T. Cuddington
  • Arturo L. Va'squez Cordano

    () (Division of Economics and Business, Colorado School of Mines)

Abstract

This paper develops GARCH and VEC-MGARCH-based tests of four hypotheses from Fama and French (1988) involving linkages between spot and futures prices --- both their levels and variances. The tests are applied to monthly data for seven metals traded on the London Metal Exchange over the period 1988:11, where available, through 2008:07.

Suggested Citation

  • John T. Cuddington & Arturo L. Va'squez Cordano, 2013. "Linkages between spot and futures prices: Tests of the Fama-French-Samuelson hypotheses," Working Papers 2013-09, Colorado School of Mines, Division of Economics and Business.
  • Handle: RePEc:mns:wpaper:wp201309
    as

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    File URL: http://econbus-papers.mines.edu/working-papers/wp201309.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
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    3. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
    4. Working, Holbrook, 1933. "Price Relations Between July And September Wheat Futures At Chicago Since 1885," Wheat Studies, Stanford University, Food Research Institute, vol. 9(06), March.
    5. Bresnahan, Timothy F & Suslow, Valerie Y, 1985. "Inventories as an Asset: The Volatility of Copper Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 409-424, June.
    6. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-354, June.
    7. Ng, Victor K & Pirrong, Stephen Craig, 1994. "Fundamentals and Volatility: Storage, Spreads, and the Dynamics of Metals Prices," The Journal of Business, University of Chicago Press, vol. 67(2), pages 203-230, April.
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    12. Nicholas Kaldor, 1939. "Speculation and Economic Stability," Review of Economic Studies, Oxford University Press, vol. 7(1), pages 1-27.
    13. Bresnahan, Timothy F & Spiller, Pablo T, 1986. "Futures Market Backwardation under Risk Neutrality," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 429-441, July.
    14. Brian D. Wright & Jeffrey C. Williams, 2000. "A theory of negative prices for storage," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(1), pages 59-71, January.
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    More about this item

    Keywords

    Samuelson Futures Price Hypothesis; Cost-of-Carry Model; Theory of Storage; Cointegration; MGARCH Models; Spot and Futures Prices;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other

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