A factor analytical approach to the efficient futures market hypothesis

Westerlund, Joakim, Norkute, Milda and Narayan, Paresh Kumar 2015, A factor analytical approach to the efficient futures market hypothesis, Journal of futures markets, vol. 35, no. 4, pp. 357-370, doi: 10.1002/fut.21687.

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Title A factor analytical approach to the efficient futures market hypothesis
Author(s) Westerlund, JoakimORCID iD for Westerlund, Joakim orcid.org/0000-0002-8030-5706
Norkute, Milda
Narayan, Paresh KumarORCID iD for Narayan, Paresh Kumar orcid.org/0000-0001-7934-8146
Journal name Journal of futures markets
Volume number 35
Issue number 4
Start page 357
End page 370
Total pages 14
Publisher Wiley
Place of publication London, Eng.
Publication date 2015-04
ISSN 0270-7314
1096-9934
Summary 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 article 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 article 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. © 2014 Wiley Periodicals, Inc.
Language eng
DOI 10.1002/fut.21687
Field of Research 150202 Financial Econometrics
Socio Economic Objective 900102 Investment Services (excl. Superannuation)
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Wiley
Persistent URL http://hdl.handle.net/10536/DRO/DU:30068351

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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