Testing Overreaction and Under-reaction in the Commodity Futures Market

Results from previous studies testing for under-reaction and overreaction in the commodity futures market are mixed and inconclusive. Using a data of more than 20 categories of future contacts ranging from agricultural, metal and energy, we have found significant evidence of under-reaction in food a...

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Bibliographic Details
Main Author: DAI, Jingyu
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2012
Subjects:
Online Access:https://ink.library.smu.edu.sg/etd_coll/89
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1085&context=etd_coll
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Institution: Singapore Management University
Language: English
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Summary:Results from previous studies testing for under-reaction and overreaction in the commodity futures market are mixed and inconclusive. Using a data of more than 20 categories of future contacts ranging from agricultural, metal and energy, we have found significant evidence of under-reaction in food and agricultural commodities but not in the energy and metal sector. It is also found that those relatively inactive commodity future contracts tend to have a stronger tendency to under-react than commodity future contracts are very actively traded. The result also agrees with the behavioral hypothesis that under-reaction is caused by gradual incorporation of information among investors.