Empirical Evidence on the Efficiency of Agricultural Commodity Markets

Abstract

The existence of weak form of efficiency in agricultural commodities is explored in the present paper. The data used in the research consists of daily closing prices for thirteen futures contracts covering the period January 1995 through May 2012. Majority of the agricultural commodities showed positive mean returns during the study period. The descriptive statistics indicate that the commodity return series is characterized by negative skewness, high kurtosis and non-normality behavior. The results further show that agricultural commodities exhibit mean aversion behavior. Analysis of daily returns indicates that cotton, feeder cattle, live cattle, oats and orange juice show significant departures from random walk. Soy oil, sugar and wheat markets exhibit signs of efficiency and it is therefore difficult to predict their future price behavior. For those markets, which reject weak form efficiency, the investors might be able to take advantage of price anomalies while they last, and gain economic profits. The existence of weak form of efficiency in agricultural commodities is explored in the present paper. The data used in the research consists of daily closing prices for thirteen futures contracts covering the period January 1995 through May 2012. Majority of the agricultural commodities showed positive mean returns during the study period. The descriptive statistics indicate that the commodity return series is characterized by negative skewness, high kurtosis and non-normality behavior. The results further show that agricultural commodities exhibit mean aversion behavior. Analysis of daily returns indicates that cotton, feeder cattle, live cattle, oats and orange juice show significant departures from random walk. Soy oil, sugar and wheat markets exhibit signs of efficiency and it is therefore difficult to predict their future price behavior. For those markets, which reject weak form efficiency, the investors might be able to take advantage of price anomalies while they last, and gain economic profits. (G14, Q13)