Showing papers in "Journal of Futures Markets in 1991"

Measuring seasonalities in commodity markets and the half‐month effect

Abstract: ecently, an extensive amount of research has been devoted to the issue of emR pirical anomalies in financial markets. In time series data involving individual issues and/or market indices, seasonalities have been documented with respect to the turn ofthe year (Keim (1983), Roll (1983), Haugen and Lakonishok (1988)), the day o f the week (French (1980), Gibbons and Hess (1981), Keim and Stambaugh (1984)), the halfmonth’ period (Ariel, 1987), and the time ofthe day (Harris, 1986), among others. The consistent recurrence of these seasonalities raises questions about market rationality and market efficiency, and has led to new theoretical models to explain such anomalies (Rock (1989), Admati and Pfleiderer (1988)). However, even when attempts are made to reduce incidental noise from the data with the use of different and larger datasets (Lakonishok and Smidt, 1988), most of the regularities remain intact. While researchers in the stock and bond markets cannot fully explain the existence of all seasonalities on the basis of market rationality alone, the existence of seasonalities in the commodity markets is potentially explainable by the cyclic nature of production. Because agricultural commodities must follow their own crop cycle which repeats the same seasonal patterns year after year, observed commodity prices exhibit nonstationarities along the same seasonal lines. Crop cycle-related seasonalities in agricultural commodities are documented by Roll (1984), Anderson (1985), Milonas and Vora (1985), Kenyon et al. (1987), and Fama and French (1987). However, since commodities are traded in markets similar to the financial markets, it is an empirical question whether the seasonalities found in financial markets are also present in commodity markets.

Determining the relevant fair value(s) of S&P 500 futures: A case study approach

Abstract: A fundamental consideration for potential users of stock index futures is the determination of the futures’ break-even price or fair value. Conceptually, being able to sell futures at prices above the break-even or buy futures at prices below the break-even offers opportunity for incremental gain. This article points out an important, though widely unappreciated caveat. That is, no single break-even price is universally appropriate. Put another way, the break-even price for a given institution depends on the motivation of that firm as well as its marginal funding and investing yield alternatives.

Evidence for a weather persistence effect on the corn, wheat, and soybean growing season price dynamics

Abstract: The growing season weather in the corn, wheat and soybean production areas of the United States is an important determinant of the U.S. supply of these commodities. The weather and climatology literature strongly suggest that during the summer months there is a degree of persistence in the North American weather patterns. Given this nonrandom character of weather and given that the corn, wheat and soybean belts are geographically concentrated enough to be dominated by a regional weather phenomenon, their futures markets are hypothesized to reflect this assimilation of nonrandom weather information as nonrandom price fluctuations. An empirical test of this question is the subject of this paper.

An empirical test for parities between metal prices at the LME

Abstract: A stock price parity reflects the known resources of the commodities, while a flow parity concerns short-term supplies. Prices may not only converge in the long-run to a fixed stock parity, but also move toward sequences of short-run flow equilibria. Cointegration analysis is used in an empirical test for price parities at the London Metal Exchange (LME). The analysis focuses on the behavior of 5 nonferrous metals in 1981. One cointegration relationship, or parity, is found to exist between the 5 forward metal prices on the LME over 251 trading days in 1981. The kurtosis of the cointegration relationship may come close to the normality value, while those of the individual returns may not. Unreported calculations show that this is indeed the case.