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Unobservable information and behavioural patterns in futures markets: The case for Brent Crude Oil, Gold and Robusta Coffee contracts

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The paper shows that investors in commodity futures contracts may not react efficiently to information contained in price shocks. More specifically, the results suggest that, between 1990 and 2005, investors in the IPE Brent Crude Oil Futures contract overreacted to positive market shocks, investors in the CMX Gold Futures contract underreacted to negative price shocks, and investors in the LIFFE Robusta Coffee Futures contract underreacted to positive price shocks. Further analysis indicates that, for the oil and gold contracts, this behaviour is contained in the sub-period between 2000 and 2005, while for the coffee contract it is contained in the sub-period between 1991 and 1994. A zero-investment trading strategy for the IPE Brent Crude Oil Futures contract generates significant arbitrage profits, indicating that these pricing inefficiencies may be exploitable in practice.

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Correspondence to Spyros Spyrou.

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Spyrou, S. Unobservable information and behavioural patterns in futures markets: The case for Brent Crude Oil, Gold and Robusta Coffee contracts. J Deriv Hedge Funds 12, 48–59 (2006). https://doi.org/10.1057/palgrave.dutr.1840042

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