A Factor Analytical Approach to the Efficient Futures Market Hypothesis
Author
Summary, in English
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 paper 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 paper 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.
August 2012. The evidence suggests that the EFMH cannot be rejected once the panel evidence has been taken into account.
Department/s
Publishing year
2015
Language
English
Pages
357-370
Publication/Series
Journal of Futures Markets
Volume
35
Issue
4
Document type
Journal article
Publisher
John Wiley & Sons Inc.
Topic
- Economics
Keywords
- Dynamic panel data models
- Unit root
- Factor analytical method
- Efficient market hypothesis
- Futures markets.
Status
Published
ISBN/ISSN/Other
- ISSN: 1096-9934