A Framework for Comparing the Efficiency of Futures Markets

Tetteh A. Kofi

American Journal of Agricultural Economics, 1973, vol. 55, issue 4_Part_1, 584-594

Abstract: Empirical observation and theoretical analyses show that the allocative and forward pricing functions of futures markets are more reliable for continuous than for discontinuous inventory markets. This emphasis on the importance of carry-over inventory in affecting day-to-day price spreads is extended to take into account other factors which contribute to pricing efficiency. By examination of the characteristic behavior of the life cycle of a futures contract, a framework is developed to test, analyze, and contrast the performance of futures markets, i.e., how reliable futures quotations are as predictors of spot (cash) prices. Policy and theoretical implications are given.

Date: 1973
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