Price Discovery, Causality and Forecasting in the Freight Futures Market
Manolis Kavussanos () and
Nikos Nomikos ()
Review of Derivatives Research, 2003, vol. 6, issue 3, 203-230
This paper investigates the causal relationship between futures and spot prices in the freight futures market. Being a thinly traded market whose underlying asset is a service, sets it apart from other markets investigated so far in the literature. Causality tests, generalised impulse response analysis and forecasting performance evaluation indicate that futures prices tend to discover new information more rapidly than spot prices. Revisions in the composition of the underlying index to make it more homogeneous, have strengthened the price discovery role of futures prices. The information incorporated in futures prices, when formulated as a VECM, produces more accurate forecasts of spot prices than the VAR, ARIMA and random-walk models, over several steps ahead. Copyright Kluwer Academic Publishers 2003
Keywords: futures markets; forecasting; Granger causality; generalised impulse response analysis; shipping (search for similar items in EconPapers)
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