Discussion questions for ret pred

Discussion questions for ret pred - after the initiation of...

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Discussion questions for return predictability in futures market Note: please think about these questions when you read the following three papers. You are required to discuss these questions in your study groups before the class, and I will ask you to present your answers. a. “Facts and Fantasies about Commodity Futures” (Gorton and Rouwenhorst, 2006) b. “Commodity Market Interest and Asset Return Predictability” (Hong and Yogo, 2010) c. “Time Series Momentum” (Moskowitz, Ooi, and Pedersen, 2010) 1. What are the differences between the current spot price, the futures price, and the expected future spot price? What are the expected and unexpected movements in spot price? Is the expected spot price movements priced in the futures price? Why? 2. Does the futures price provide an unbiased estimate for the expected future spot price? Why does the futures price change
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Unformatted text preview: after the initiation of a futures contract? What is the risk premium in the futures return? What does Keynesian normal backwardation theory say about risk premium, hedgers and speculators? 3. What does “basis” mean in futures market? What is “contango” vs. “backwardation”? How is basis related to risk premium and spot return in commodity market? 4. How are the returns on futures compared with those on stocks and bonds? What are possible portfolio implications? 5. What does the literature find about the return predictability in futures market? What are useful predictors? How will you interpret the predictability from a practitioner’s perspective? 6. How will you perform a portfolio strategy to take the advantage of trend effect in the futures market? What are possible explanations for the persistence of momentum effect?...
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This note was uploaded on 10/31/2010 for the course NBA 6730 at Cornell.

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