Abstract:
This article identifies some shortcomings in the tests of the Keynesian hypothesis
implemented so far. The previous studies either assume integration between futures
and equity markets or rely on a methodology that might produce incorrect inferences
regarding the presence of a futures risk premium. This article investigates the normal
backwardation theory using a methodology exempt from these problems. While
short and long hedgers in agricultural commodity futures markets transfer their
risk to one another at no cost, the Keynesian hypothesis is found to have some
merits in describing the way financial and metal futures prices are set.
