Evaluation of the Future Price of Brazilian Commodities as a Predictor of the Price of the Spot Market

Alexandre Vasconcelos Lima, Rogério Boueri Miranda and Mathias Tessmann

International Journal of Economics and Finance, 2022, vol. 14, issue 4, 51

Abstract: The present work seeks to bring empirical evidence on the efficiency of futures prices as predictors of spot market prices. For this, future and spot prices of live cattle, coffee, corn, soybeans, ethanol, gold and dollars traded in Brazil are considered. To compare the probability of occurrence with the event that actually happened, the score proposed by Brier in 1950 is used. It was observed that the spot and future price curves have the same trajectory and, considering the same date, have similar values. Despite this behavior, when calculating the scores, we found that the lowest was found for live cattle, 0.47, the highest for the dollar, with a value close to 1, and the other assets varied between 0.6 and 0.8. Scores of 1 denote worse predictive powers, it was noted that future prices are not good predictors for the assets considered. These results contribute to filling the gap in the financial literature that seeks to assess the efficiency of futures markets by bringing empirical evidence to Brazilian commodities and using the Brier Score. The findings are also useful for financial market agents who use these assets in their portfolios, producers and principals in the supply chain and policy makers who make decisions involving these commodities.

Date: 2022
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