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Monte Carlo Analysis of Mean Reversion in Commodity Futures Prices
Author(s) -
Irwin Scott H.,
Zulauf Carl R.,
Jackson Thomas E.
Publication year - 1996
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243711
Subject(s) - mean reversion , futures contract , econometrics , monte carlo method , commodity , economics , contrast (vision) , regression analysis , regression , reversion , statistics , financial economics , mathematics , computer science , finance , biochemistry , chemistry , artificial intelligence , gene , phenotype
This study examines whether mean reversion is present in corn, soybean, wheat, live hog, and live cattle futures prices. Consistent with earlier studies, asymptotic regression results provide substantial evidence of mean reversion in commodity futures price movements. In sharp contrast, the Monte Carlo regression analysis does not provide support for the existence of mean reversion in commodity futures prices. A clear implication is that the asymptotic regression results are misleading. The reason is that the small sample distributions of test statistics are not well approximated by assumed asymptotic distributions.