Efficiency in the salmon futures market : an empirical study based on fish pool 2006-2016

Abstract

This thesis assesses efficiency in the salmon futures market by testing for cointegration between spot and futures prices, and tests whether futures prices are the best forecast of subsequent spot prices, which is referred to as the unbiasedness hypothesis. Since spot and futures prices on salmon are found to be non-stationary processes, cointegration procedures are employed to test the unbiasedness hypothesis. In addition to efficiency, this thesis investigates the salmon futures market´s ability to function as a risk management tool by examining whether the futures prices provide a price discovery function for future spot prices. Using weekly observations of spot and futures prices with 1- to 12-months to maturity in the period from June 2006 – June 2016, we find evidence that supports market efficiency. Spot and futures prices are cointegrated and the unbiasedness hypothesis holds for most contract lengths. Furthermore, we find that the futures market for salmon provides a price discovery function and conclude that this futures market is mature and satisfies as a risk management tool. Our findings are consistent with the previous literature on efficiency in salmon futures markets, although our tests show stronger evidence on the salmon futures market´s ability to provide a price discovery function. Differences may be due to alternative methodological approaches and a different data set. Since the futures prices are shown to be unbiased and provide a price discovery function, this thesis suggest that hedgers and commercial participants in the salmon farming industry can use Fish Pool for risk management purposes.