Long Memory in Futures Prices

Abstract

This paper tests for fractional roots in the futures prices for selected commodities, foreign currencies, and stock indices. The fractional testing method is the spectral regression method suggested by Geweke and Porter-Hudak. The empirical results suggest the presence of a fractional exponent in the differencing process for most major commodity and several foreign-currency futures prices. The returns series for these commodities and currencies exhibit long-range positive dependence. However, differencing of exact order one is sufficient for the stock-index futures prices. Implications are drawn concerning theoretical and econometric modeling and price forecasting.

JEL Classification: G13, G14