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A Test of Weak-Form Market Efficiency in Australian Bank Bill Futures Calendar Spreads

  • John Anderson

This paper demonstrates how the presence of a lower interest rate expectations detected in short-term interest rate futures during the 1990’s allowed arbitrage profits when trading intra-commodity spread differentials on the Sydney Futures Exchange’s 90 Day Bank Accepted Bill futures contract. Fama’s (1970) hypothesis on market efficiency cannot be accepted for the test period as statistically significant gross profits were generated by a naïve strategy. The EMH had greater predictive power once transactions costs were deducted. Furthermore, the EMH remained unable to be accepted after the allowance of generous transaction costs.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20No%20134.pdf
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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 134.

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Date of creation: 20 Jan 2003
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Handle: RePEc:qut:dpaper:134
Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
Web page: http://www.bus.qut.edu.au/faculty/economics/
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  1. Louis P. Lukac & B. Wade Brorsen, 1989. "The usefulness of historical data in selecting parameters for technical trading systems," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(1), pages 55-65, 02.
  2. Cargill, Thomas F, 1975. "The Term Structure of Interest Rates: A Test of the Expectations Hypothesis," Journal of Finance, American Finance Association, vol. 30(3), pages 761-71, June.
  3. B. Wade Brorsen & Louis P. Lukac, 1990. "Optimal portfolios for commodity futures funds," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 10(3), pages 247-258, 06.
  4. Brealey, Richard & Schaefer, Stephen M, 1977. "Term Structure with Uncertain Inflation," Journal of Finance, American Finance Association, vol. 32(2), pages 277-89, May.
  5. John Y. Campbell & Robert J. Shiller, 1989. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," NBER Working Papers 3153, National Bureau of Economic Research, Inc.
  6. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  7. Stevenson, Richard A & Bear, Robert M, 1970. "Commodity Futures: Trends or Random Walks?," Journal of Finance, American Finance Association, vol. 25(1), pages 65-81, March.
  8. John F. O. Bilson & David A. Hsieh, 1983. "The Profitability of Currency Speculation," NBER Working Papers 1197, National Bureau of Economic Research, Inc.
  9. Michael Dotsey & Christopher Otrok, 1995. "The rational expectations hypothesis of the term structure, monetary policy, and time-varying term premia," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 65-81.
  10. Tzavalis, Elias & Wickens, Michael R, 1997. "Explaining the Failures of the Term Spread Models of the Rational Expectations Hypothesis of the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 364-80, August.
  11. Hooker, Mark A., 1999. "The maturity structure of term premia with time-varying expected returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(3), pages 391-407.
  12. Boothe, Paul & Longworth, David, 1986. "Foreign exchange market efficiency tests: Implications of recent empirical findings," Journal of International Money and Finance, Elsevier, vol. 5(2), pages 135-152, June.
  13. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March.
  14. Lange, Ron, 1999. "The Expectations Hypothesis for the Longer End of the Term Structure: Some Evidence for Canada," Working Papers 99-20, Bank of Canada.
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