Revisiting the Samuelson hypothesis on energy futures

W.-H. Liu

Quantitative Finance, 2021, vol. 21, issue 12, 2089-2101

Abstract: We investigate two issues in this article. First, this study employs almost stochastic dominance and the power spectrum to investigate the maturity effect, a hypothesis proposed by Samuelson (1965. Proof that properly anticipated prices fluctuate randomly. Industrial Management Review, 1965, 6(2), 41–49; 1976. Is real-world price a tale told by the idiot of chance? The Review of Economics and Statistics, 1976, 58(1), 120–123) in the stochastic variance framework. Second, we also reevaluate the argument in Bessembinder et al. (1996. Is there a term structure of futures volatilities? Reevaluating the Samuelson hypothesis. Journal of Derivatives, 1996, 4(2), 45–58) that spot price seasonality plays a role in explaining this hypothesis. We include five types of energy futures for empirical examination. The outcomes provide evidence ranging from supporting, to being contrary to the hypothesis. For empirical analysis, we also highlight that the periodic pattern of the futures return series explains the difference in outcomes. Those in the spot price, futures price, or spot return series do not contribute to these outcomes.

Date: 2021
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DOI: 10.1080/14697688.2020.1724319

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