Economic significance of the predictable movements in futures returns

Publisher:
Blackwell Publishing
Publication Type:
Journal article
Citation:
Miffre, J. 2004 'Economic significance of the predictable movements in futures returns', Economic Notes, vol. 31, no. 1, pp. 135-146.
Issue Date:
2004
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This paper tests whether the variation in expected futures returns reflects rational pricing in an efficient market or weak-form market inefficiency. The issue is investigated by looking at the abnormal performance of a trading rule based on available information. Once one allows for time-varying risk and time-varying risk premia, the investment strategy can be used consistently to generate abnormal returns in seven out of 26 markets. With relatively few exceptions therefore, the predictable movements in futures returns reflect weakform market efficiency. The paper also shows that wrongly assuming constant expected returns may lead to incorrect inferences regarding market efficiency.
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