Revisiting the Samuelson hypothesis on energy futures

Abstract

We investigate two issues in this article. First, this study employs almost stochastic dominance and the power spectrum to investigate the maturity effect, a hypothesis proposed by Samuelson (1965. Proof that properly anticipated prices fluctuate randomly. Industrial Management Review, 1965, 6(2), 41–49; 1976. Is real-world price a tale told by the idiot of chance? The Review of Economics and Statistics, 1976, 58(1), 120–123) in the stochastic variance framework. Second, we also reevaluate the argument in Bessembinder et al. (1996. Is there a term structure of futures volatilities? Reevaluating the Samuelson hypothesis. Journal of Derivatives, 1996, 4(2), 45–58) that spot price seasonality plays a role in explaining this hypothesis. We include five types of energy futures for empirical examination. The outcomes provide evidence ranging from supporting, to being contrary to the hypothesis. For empirical analysis, we also highlight that the periodic pattern of the futures return series explains the difference in outcomes. Those in the spot price, futures price, or spot return series do not contribute to these outcomes.

Keywords:

• Maturity effect
• Stochastic volatility
• Almost stochastic dominance
• Power spectrum

JEL Classification:

• C44
• C59
• G13

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 After a contract expires, the contracts of a one-month maturity for the remainder of that calendar month is the second following month. The contracts of maturities of two, three, and four months represent the successive months. This study does not target specific contracts for their delivery to maturity or their possible rollover effects. The four return series of each group represent the aggregate return of various contracts of the same maturity.