Journal of
Economics and International Finance

  • Abbreviation: J. Econ. Int. Finance
  • Language: English
  • ISSN: 2006-9812
  • DOI: 10.5897/JEIF
  • Start Year: 2009
  • Published Articles: 348

Full Length Research Paper

Lead - lag relationship between the futures and spot prices

S. Jackline* and Malabika Deo
Department of Commerce, Pondicherry University, Pondicherry – 605 014, India.
Email: [email protected]

  •  Accepted: 08 June 2011
  •  Published: 31 July 2011

Abstract

 

This paper examined the relationship between the futures market and spot market for the lean hogs and pork bellies markets during the sample period January 2001 through May 2010 and quantifies the price discovery function of commodity futures prices in relation to spot prices of the sample markets. The econometric tools like Unit root tests and Pairwise Granger Causality tests were employed in the study. The Augmented Dickey Fuller tests and Phillips-Perron tests employed in the study proved that both the selected markets were stationary series and the Granger Causality test proved bi-causality relationships among these markets. Hence, it was concluded that the profitable arbitrage does not exist in both of these markets and they are said to be in perfect equilibrium.

 

Key words: Price discovery, causality, lean hogs and pork bellies