A Factor Analytical Approach to the Efficient Futures Market Hypothesis

Abstract

Most empirical evidence suggests that the efficient futures market hypothesis, henceforth referred to as EFMH, stating that spot and futures prices should cointegrate with a unit slope on futures prices, does not hold, a finding at odds with many theoretical models. This article argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. The current article can be seen as a step in this direction. In particular, a newly developed factor analytical approach is employed, which is very general and, in addition, free of the otherwise so common incidental parameters bias in the presence of fixed effects. The approach is applied to a large panel covering 17 commodities between March 1991 and August 2012. The evidence suggests that the EFMH cannot be rejected once the panel evidence has been taken into account. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:357–370, 2015

Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach

“…It is well known that oil prices have impacts on consumer prices (e.g., Comley, 2014). In parallel, it is also demonstrated that oil and gold prices have a significant positive relationship Westerlund and Narayan, 2013;Westerlund et al, 2015). In addition, when oil prices increase, oil producers would have more cash to invest in gold.…”

The effects of investor attention on commodity futures markets

“…Switzer and El-Khoury (2007) investigates the efficiency of the New York Mercantile Exchange (NYMEX) Division light sweet crude oil futures contract market and crude oil futures contract prices are found to be cointegrated with spot prices and unbiased predictors of future spot prices. Additionally, Westerlund, Norkute, and Narayan (2015) advance a factor analytical approach to the efficient futures market hypothesis. Additionally, Westerlund, Norkute, and Narayan (2015) advance a factor analytical approach to the efficient futures market hypothesis.…”

“…Saberi et al, 2011 study the market efficiency and unbiasedness among WTI futures with different maturities tested. Additionally, Westerlund, Norkute, and Narayan (2015) advance a factor analytical approach to the efficient futures market hypothesis. Still, there is a limited amount of research that investigates the market efficiency in commodity futures markets.…”

Is gold different for risk-averse and risk-seeking investors? An empirical analysis of the Shanghai Gold Exchange

“…The second one is interested in the role of gold as a hedge against inflation (e.g., Batten et al, 2014;Bampinas and Panagiotidis, in press). The third one studies the informational efficiency of gold markets (e.g., GallaisHamonno et al, 2015;Narayan et al, 2010;Westerlund et al, 2015). The fourth one assesses the relationship between gold and other precious metals and commodities (e.g., Mensi et al, 2013;Narayan and Liu, 2011;Narayan et al, 2013).…”