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Monash University and

By D. E. Allen, S. Cruickshank, N. Morkel-kingsbury and N. Souness

Abstract

Normal backwardation, first discussed by Keynes (1923), (1930) and Hicks (1946), is a fee paid by a seller of a security to the buyer for the privilege of deferring delivery. It implies that a risk premium exists so that the futures price falls short of the expected future spot price. The reverse case, ‘contango’, implies that the futures price exceeds the expected future spot price. This paper applies tests for the existence of normal backwardation to daily closing prices on the Sydney Futures Exchange (SFE), London International Financial Futures and Options Exchange (LIFFE) and the Singapore International Monetary Exchange (SIMEX). By applying a series of tests after Kolb’s (1992) study of US commodities, it is found that few of the contracts studied consistently exhibit normal backwardation while many show evidence of contango

Topics: 1
Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.196.8867
Provided by: CiteSeerX
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