Long memory and structural breaks in commodity futures markets
Year: 2010
Type: article
Abstract: This study employs daily data for 14 commodities and three financial assets 1990–2009 to explore the impact of the time series properties of the futures‐spot basis and the cost of carry on forward market unbiasedness. The main result is that the basis of 16 assets exhibits both long memory and structural breaks. The long memory in the basis is robust even to the use of break‐adjusted data. It implies that the cost‐of‐carry has long memory which the empirical results confirm using the interest cost as a proxy. These new findings suggest that the forecast error has long memory and are inconsistent with unbiasedness. They could be consistent with a weaker version of market efficiency in the presence of a fractionally integrated, time‐varying risk premium but they could also be rationalized by priced noise trader risk with limits to arbitrage in less than fully efficient markets. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark
Source: Journal of Futures Markets
DOI: 10.1002/fut.20502
Authors: Jerry Coakley, Jian Dollery, Neil Kellard
Institutions: University of Essex, University of Bradford
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2014452709