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Commodity Futures Prices: Some Evidence on Forecast Power, Premiums, and the Theory of Storage

Eugene F. Fama and Kenneth R. French
The Journal of Business
Vol. 60, No. 1 (Jan., 1987), pp. 55-73
Stable URL: http://www.jstor.org/stable/2352947
Page Count: 19
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Commodity Futures Prices: Some Evidence on Forecast Power, Premiums, and the Theory of Storage
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Abstract

We examine two models of commodity futures prices. The theory of storage explains the difference between contemporaneous futures and spot prices (the basis) in terms of interest changes, ware-housing costs, and convenience yields. We find evidence of variation in the basis in response to both interest rates and seasonals in convenience yields. The second model splits a futures price into an expected premium and a forecast of the maturity spot price. We find evidence of forecast power for 10 of 21 commodities and time-varying expected premiums for five commodities.

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