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Reexamining the maturity effect using extensive futures data

Elton Daal, Joseph Farhat and Peihwang Wei
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Elton Daal: University of New Orleans
Joseph Farhat: Hashemite University
Peihwang Wei: University of New Orleans

No 2003-06, Working Papers from University of New Orleans, Department of Economics and Finance

Abstract: In his seminal article, Samuelson (1965) proposes the maturity effect that volatility of futures prices should increase as futures contract approaches expiration. This study provides new evidence on the maturity effect by examining a more extensive set of futures contracts over longer period than previous studies: 8451 futures contracts drawn from 74 commodities and four International exchanges, (London, Sydney, Tokyo and Winnipeg Futures), in addition to the U.S. markets over the years from 1960 to 2000. Strong support is found for the maturity effect in agricultural and energy commodities, but not for financial futures. Moreover, negative covariance between spot price and net carry cost appears to be able explain the maturity effect fairly well for commodity futures.

Keywords: Futures prices; Volatility; Maturity effect; Samuelson Hypothesis; Futures mark (search for similar items in EconPapers)
JEL-codes: C32 G12 G13 Q14 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003
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Handle: RePEc:uno:wpaper:2003-06