Futures contracts pricing and futures price unbiasedness (FPU) hypothesis: Argentinean wheat market

Abstract

This paper tested an arbitrage pricing model for futures contracts on commodities with storage costs. We found that this method proves to be very accurate in describing the behaviour of futures prices for wheat at the Argentine grain futures exchange, the "Bolsa de Cereales de Buenos Aires" (BCBA). A direct test of the futures-price-unbiasedness (FPU) proposition -which states that futures prices are unbiased estimators of future spot prices- was done. The results support the validity of the proposition within the Argentine market. Finally, a theoretical exercise based on Samuelson's classic paper (1965) about the behaviour of futures prices was done together with a brief analysis of arbitrage opportunities. This sections shows that during the analysed period (1991-1996) arbitrage opportunities were only found when abnormal information was introduced and that over the years there was no pattern which would have allowed seasonal arbitrage. We also found that on average, futures prices were better spot prices predictors than a spot price ARIMA econometric model.