Australian commodity futures prices : evidence on forecast power, premiums, and the theory of storage

Quinnell, Lynne-Ellen. (1998). Australian commodity futures prices : evidence on forecast power, premiums, and the theory of storage Honours Thesis, School of Economics, University of Queensland.

       
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Author Quinnell, Lynne-Ellen.
Thesis Title Australian commodity futures prices : evidence on forecast power, premiums, and the theory of storage
School, Centre or Institute School of Economics
Institution University of Queensland
Publication date 1998
Thesis type Honours Thesis
Total pages 99
Language eng
Subjects 14 Economics
Formatted abstract There are two popular theories that serve to explain the behaviour of futures prices. The Theory of the Price of storage explains the spread between the current spot and futures price as a function of net marginal storage costs. The alternative view expresses a futures price as the sum of an expected spot price and an expected premium. While the Theory of storage is not controversial, there is little agreement as to whether futures prices contain either of these two components. In this thesis, both models will be used to study the behaviour of greasy wool, trade steers, gold and silver futures •prices. As a prelude to this, a review of the literature related to these theories is presented. In particular, it is shown that difficulties in verifying the normal backwardation hypothesis may be partially due to definitional problems.

Statistical tests are applied to the data. The results obtained are consistent with French's [1986] proposition that the power to detect expected premia or predict future spot prices is related to the storage characteristics of the commodity. More specifically, the tests conducted provide results consistent with the predictions of the Price of storage theory, while more powerful tests must be conducted before only marginal evidence of expected premia or reliable forecast power is found.


 
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