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The futures market efficiency of gold, silver and copper

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The futures market efficiency of gold, silver and copper

Cao, Shen (2007) The futures market efficiency of gold, silver and copper. Masters thesis, Concordia University.

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Abstract

Gold, silver, and copper futures market efficiency is examined by looking at whether futures contract prices contain useful information about future spot prices. The Fama and French (1987) regression approach is applied to test whether the futures price has forecast power on the spot price or if it contains information about the premium to be realized at maturity. The result suggests that the futures price of gold has some forecast power while the futures price of copper contains information about the time-varying premium. Unit root and co-integration analysis indicates that futures prices and spot prices of gold, silver, and copper are co-integrated at 95% confidence level. This means that the futures contract prices are unbiased predictors of future spot prices. Thus, the efficiency of the gold, silver, and copper futures markets is supported. The univariate GARCH test finds evidence of conditional time-varying volatility for both futures and spot series. Also, positive asymmetry where positive price shocks are associated with greater volatility increases than negative price shocks is revealed. As the gold, silver and copper futures contract series and spot series are almost perfectly correlated, naïve or 1-1 hedging reduces almost all of the variance and realizes high hedging effectiveness. The strong correlation of futures and spot returns supports the hypothesis that futures markets are efficient. Keywords: futures; market efficiency; GARCH; hedge effectiveness

Divisions:Concordia University > John Molson School of Business
Item Type:Thesis (Masters)
Authors:Cao, Shen
Pagination:vi, 44 leaves : ill. ; 29 cm.
Institution:Concordia University
Degree Name:Theses (M. Sc. Admin.)
Program:John Molson School of Business
Date:2007
Thesis Supervisor(s):Switzer, Lorne
ID Code:975756
Deposited By: Concordia University Library
Deposited On:22 Jan 2013 16:14
Last Modified:18 Jan 2018 17:41
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