Arbitrage, cointegration and testing the unbiasedness hypothesis in coffee futures traded at the CSCE

Malini, Nair (2005): Arbitrage, cointegration and testing the unbiasedness hypothesis in coffee futures traded at the CSCE.

Abstract

The objective of this study was to test the market efficiency hypothesis of Colombian coffee. This is of extreme importance to Colombia because the exports of coffee from this country provides for valuable foreign exchange and provides employment for her people. Historically this country has been concerned with the volatility of spot markets and used buffer stocks and quotas to protect her from price risk. The previous futures prices were found to be an unbiased predictor of current spot prices indicating the markets are efficient.

• Item Type: MPRA Paper
• Language: English
• Keywords: Coffee futures, Error Correction Model, Dickie Fuller Test, Johansen Procedure
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics

References

Baillie, R. T., Lippens, R.E. and McMahon, P. C. (1983). Testing Rational Expectations and Efficiency in the Foreign Exchange Market. Econometrica. 51: 553-564.

Bessler, D. A. (2000) Class Notes for Agec 661: Unpublished Notes. Texas A & M University, College Station, TX.

Bessler, D. A., and Fuller, S.W. (1993). Cointegration Between U.S. Wheat Markets. Journal of Regional. Science. 33: 481-501.

Bilson, J. F. O. (1981). The Speculative Efficiency Hypothesis. Journal of Business. 54, 435-451.

Brenner, R.J., and Kroner, K.F. (1995). Arbitrage, Cointegration and Testing the Unbiasedness Hypothesis in Financial Markets. Journal of Financial and Quantitative Analysis. 30, 23- 42.

Commodity Research Bureau Inc. (1992). Commodity Yearbook, New York.

Enders, W. (1995). Applied Econometric Time Series. John Wiley and Sons, Inc, New York.

Engle, R. F., and Granger, C. W.J. (1987). Cointegration and Error Correction Representation, Estimation and Testing. Econometrica. 55, 251-276.

Haigh, M.S., (2000) Cointegration, Unbiased Expectations and Forecasting in the BIFFEX Freight Futures Market, Forthcoming: Journal of Futures Markets.

Hansen, L. P., and Hodrick, R. J. (1980) Forward Exchange Rates as Optimal Predictors of Futures Spot rates: An Econometric Analysis. The Journal of Political Economy, 88, 829- 853.

Hansen, H., and Jeselius, K. (1995). Cointegration Analysis in RATS, Estima, Evanson, Illinois.

Johansen, S. (1988). Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and Control. 12, 231-254.

Johansen, S., and Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration-with Applications to the Demand and Money. Oxford Bulletin of Economics and Statistics. 52, 169-210

Sabuhoro, J. B., and Larue, B. (1997) The Market Efficiency Hypothesis: The Case of Coffee and Cocoa Futures. Agricultural Economics. 16, 171-184.

World Bank, (1994). World Development Report. Oxford University Press, New York.