Nonparametric Tests of Commodity Futures Market Efficiency

Southern Business & Economic Journal, Vol. 25, No. 3 & 4, Summer/Fall 2002

Posted: 7 Sep 2004

See all articles by Andrew M. McKenzie

Andrew M. McKenzie

University of Arkansas - Department of Agricultural Economics & Agribusiness

Harjanto Djunaidi

Middle Tennessee State University - School of Agribusiness and Agriscience

Eric J. Wailes

University of Arkansas - Department of Agricultural Economics & Agribusiness

Gail L Cramer

Louisiana State University

Abstract

Commodity futures markets carry out two important marketing functions with respect to agricultural products: (1) a price discovery role and (2) a price risk management role. The relative effectiveness with which futures markets fulfill these two roles is dependent on the efficiency of the futures market and its ability to provide unbiased forecasts of subsequent futures prices at contract maturity. Our results indicate that futures price returns for live cattle, hogs, corn, rice and soybean meal violate the standard OLS assumption of normality. However, nonparametric statistics results did not materially conflict with our OLS parametric results. Further modeling indicated live cattle, hogs and soybean meal futures returns are better specified using GARCH type models, which allow for a non-constant error variance over time.

Keywords: Nonparametric tests, Commodity Futures Markets, Market Efficiency Tests

JEL Classification: B23, C12, C13, C32, C53,Q13

Suggested Citation

McKenzie, Andrew M. and Djunaidi, Harjanto and Wailes, Eric J. and Cramer, Gail L, Nonparametric Tests of Commodity Futures Market Efficiency. Southern Business & Economic Journal, Vol. 25, No. 3 & 4, Summer/Fall 2002, Available at SSRN: https://ssrn.com/abstract=586642

Andrew M. McKenzie (Contact Author)

University of Arkansas - Department of Agricultural Economics & Agribusiness ( email )

Fayetteville, AR 72701
United States

Harjanto Djunaidi

Middle Tennessee State University - School of Agribusiness and Agriscience ( email )

Murfreesboro, TN 37132
United States

Eric J. Wailes

University of Arkansas - Department of Agricultural Economics & Agribusiness ( email )

Fayetteville, AR 72701
United States
39-6-5705-6894 (Phone)
39-6-5705-4495 (Fax)

Gail L Cramer

Louisiana State University

Baton Rouge, LA 70803
United States

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