We thank the Editor and an anonymous referee for numerous helpful comments and suggestions.
Risk premiums and predictive ability of BAX futures†
Article first published online: 19 AUG 2010
© 2010 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 31, Issue 6, pages 534–561, June 2011
How to Cite
Gospodinov, N. and Jamali, I. (2011), Risk premiums and predictive ability of BAX futures. J. Fut. Mark., 31: 534–561. doi: 10.1002/fut.20482
- Issue published online: 1 APR 2011
- Article first published online: 19 AUG 2010
- Manuscript Accepted: JUL 2010
- Manuscript Received: NOV 2009
This study provides an in-depth analysis of risk premiums in the Canadian Bankers' Acceptances futures (BAX) market. The predictive regressions for excess and holding-period returns on BAX futures lend empirical support to the presence of time-varying risk premiums especially at longer horizons. Despite the evidence of time variation in the risk premium, however, the unbiasedness of the basis as a predictor of spot returns in forecast efficiency regressions cannot be rejected. The out-of-sample forecasts of spot returns demonstrate the excellent predictive ability of models that exploit the restrictions implied by the unbiasedness hypothesis. Overall, our findings support the presence of a slowly moving risk premium and entail important practical implications for measuring monetary policy expectations and portfolio allocation. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark