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Sources of Systematic Risk in Futures and Spot Markets: A Study of Market Integration
Author(s) -
Miffre Joelle,
Priestley Richard
Publication year - 2000
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00340
Subject(s) - futures contract , forward market , spot contract , financial economics , portfolio , economics , capital asset pricing model , spot market , risk premium , market portfolio , market integration , spread trade , systematic risk , normal backwardation , business , finance , microeconomics , corporate governance , electricity , open end fund , institutional investor , electrical engineering , engineering
This article explains the implications of asset market integration for the decision making process of market participants and tests the integration between futures and spot markets. Integration is investigated with respect to the hypothesis that the sources of systematic risk in futures and spot markets command identical risk premia. While the futures and the spot markets for currencies and equities are integrated, we present new evidence that the futures and commodity spot markets are segmented. Such results are of primary importance to investors who use asset pricing models to adjust the risk‐return trade‐off of their portfolio and evaluate portfolio performance.