Backward to the Futures: A Test of Three Futures Markets

26 Pages Posted: 17 Nov 1999

See all articles by David E. Allen

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Stuart N. Cruickshank

School of Finance and Business Economics

Nigel Morkel-Kingsbury

RMIT University; Federation University Australia

Noel Souness

Government of Western Australia - Treasury

Abstract

Backwardation, first discussed by Keynes (1923), (1930) and Hicks (1946), is a fee paid by a seller of a security to the buyer for the privilege of deferring delivery. It implies that the futures price falls short of the spot price. The reverse case, 'contango', implies that the futures price exceeds the spot price. This paper applies tests for the existence of backwardation to daily closing prices on the Sydney Futures Exchange (SFE), London International Financial Futures Exchange (LIFFE) and the Singapore International Monetary Exchange (SIMEX). We apply a series of tests after Kolb's (1992) US study and find that few of the contracts studied consistently exhibit backwardation.

JEL Classification: G13

Suggested Citation

Allen, David Edmund and Cruickshank, Stuart N. and Morkel-Kingsbury, Nigel and Souness, Noel, Backward to the Futures: A Test of Three Futures Markets. Available at SSRN: https://ssrn.com/abstract=183948 or http://dx.doi.org/10.2139/ssrn.183948

David Edmund Allen (Contact Author)

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Stuart N. Cruickshank

School of Finance and Business Economics ( email )

100 Joondalup Drive
Joondalup, WA 6027
Australia

Nigel Morkel-Kingsbury

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia

Federation University Australia ( email )

University Dr.
Mt Helen, Victoria 3350
Australia

Noel Souness

Government of Western Australia - Treasury ( email )

197 St George's Terrace
Perth, WA 6000
Australia

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