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Samuelson hypothesis, arbitrage activity, and futures term premiums
Author(s) -
Brooks Robert,
Teterin Pavel
Publication year - 2020
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22128
Subject(s) - futures contract , volatility (finance) , economics , econometrics , term (time) , arbitrage , futures market , financial economics , affine term structure model , linkage (software) , monetary economics , yield curve , interest rate , physics , quantum mechanics , biochemistry , chemistry , gene
Abstract The Samuelson hypothesis asserts that futures volatility increases as maturity decreases. On the basis of 10 US commodity futures and by capturing the dynamics of the futures volatility terms structure with three factors, we show that in most markets the slope factor is strongly negative in certain periods and at best only weakly negative in other periods. High inventory levels are found to correspond to flatter volatility term structures in seven futures. This finding is consistent with the linkage between carry arbitrage and the Samuelson hypothesis. We also find that a flatter volatility term structure corresponds to lower absolute futures term premiums.