Monte Carlo analysis of mean reversion in commodity futures prices

Scott H. Irwin; Carl R. Zulauf; Thomas E. Jackson

doi:10.2307/1243711

Monte Carlo analysis of mean reversion in commodity futures prices

Scott H. Irwin, Carl R. Zulauf, Thomas E. Jackson

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English (US)
Pages (from-to)	387-399
Number of pages	13
Journal	American Journal of Agricultural Economics
Volume	78
Issue number	2
DOIs	https://doi.org/10.2307/1243711
State	Published - May 1996
Externally published	Yes

Keywords

Efficient market hypothesis
Futures prices
Mean reversion
Monte Carlo

ASJC Scopus subject areas

Agricultural and Biological Sciences (miscellaneous)
Economics and Econometrics

Online availability

10.2307/1243711

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title = "Monte Carlo analysis of mean reversion in commodity futures prices",

abstract = "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.",

keywords = "Efficient market hypothesis, Futures prices, Mean reversion, Monte Carlo",

author = "Irwin, {Scott H.} and Zulauf, {Carl R.} and Jackson, {Thomas E.}",

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AU - Zulauf, Carl R.

AU - Jackson, Thomas E.

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PY - 1996/5

Y1 - 1996/5

N2 - 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.

AB - 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.

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KW - Mean reversion

KW - Monte Carlo

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Monte Carlo analysis of mean reversion in commodity futures prices

Abstract

Keywords

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