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Do wheat futures returns exhibit long-range dependence?

Lookup NU author(s): Dr Philip Dawson

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Abstract

The efficient market hypothesis, where asset prices follow a random walk and incorporate all relevant information, is often invoked in financial economics. There is some evidence however to suggest that some asset prices do not follow random walks but display long-range dependence. Such systematic behavior of past returns is of interest to traders. This article examines long-range dependence in wheat futures prices using rescaled range analysis and the Hurst exponent. Since this estimate is biased when long-range dependence is absent and its distribution is unknown, a Monte Carlo simulation approach is proposed. Results show that wheat futures prices show no evidence of long-range dependence and there are no profitable trading rules.

Publication metadata

Author(s): Dawson PJ

Publication type: Article

Publication status: Published

Journal: Agricultural Economics

Year: 2011

Volume: 42

Issue: 1

Pages: 111-120

Print publication date: 06/09/2010

ISSN (print): 0169-5150

ISSN (electronic): 1574-0862

Publisher: Wiley-Blackwell Publishing, Inc.

URL: http://dx.doi.org/10.1111/j.1574-0862.2010.00480.x

DOI: 10.1111/j.1574-0862.2010.00480.x

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