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Long memory and structural breaks in commodity futures markets

Coakley, J and Dollery, J and Kellard, N (2011) 'Long memory and structural breaks in commodity futures markets.' Journal of Futures Markets, 31 (11). 1076 - 1113. ISSN 0270-7314

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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.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Neil Kellard
Date Deposited: 15 Nov 2011 10:16
Last Modified: 27 Nov 2017 12:15
URI: http://repository.essex.ac.uk/id/eprint/1503

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