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Reexamining the maturity effect using extensive futures data

Listed author(s):
  • Daal, Elton

    (University of New Orleans)

  • Farhat, Joseph Basheer

    (Hashemite University)

  • Wei, Peihwang P.

    (University of New Orleans)

Registered author(s):

    In his seminal article, Samuelson (1965) proposes the maturity effect that volatility of futures prices should increase as futures contract approaches expiration. This study provides new evidence on the maturity effect by examining a more extensive set of futures contracts over longer period than previous studies: 8451 futures contracts drawn from 74 commodities and four International exchanges, (London, Sydney, Tokyo and Winnipeg Futures), in addition to the U.S. markets over the years from 1960 to 2000. Strong support is found for the maturity effect in agricultural and energy commodities, but not for financial futures. Moreover, negative covariance between spot price and net carry cost appears to be able explain the maturity effect fairly well for commodity futures.

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    Paper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2003-06.

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    Length: 24 pages
    Date of creation: 2003
    Handle: RePEc:uno:wpaper:2003-06
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