Price Discovery,Causality and Forecasting in the Freight Futures Market |
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Authors: | Kavussanos Manolis G Nomikos Nikos K |
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Institution: | (1) Athens University of Economics and Business, 76 Patission St, TK 104 34 Athens, Greece;(2) Cass Business School, 106 Bunhill Row, London, EC1Y 8TZ, UK |
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Abstract: | This paper investigates the causal relationship between futures and spot prices in the freight futures market. Being a thinly
traded market whose underlying asset is a service, sets it apart from other markets investigated so far in the literature.
Causality tests, generalised impulse response analysis and forecasting performance evaluation indicate that futures prices
tend to discover new information more rapidly than spot prices. Revisions in the composition of the underlying index to make
it more homogeneous, have strengthened the price discovery role of futures prices. The information incorporated in futures
prices, when formulated as a VECM, produces more accurate forecasts of spot prices than the VAR, ARIMA and random-walk models,
over several steps ahead.
This revised version was published online in June 2006 with corrections to the Cover Date. |
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Keywords: | futures markets forecasting Granger causality generalised impulse response analysis shipping |
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