Returns to Speculators and the Theory of Normal Backwardation



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    • Department of Finance, University of Iowa. Comments and suggestions by Paul Fellows, Larry Harris, Scott Linn, Forrest Nelson, J. Michael Pinegar, Michael Roseff, Robert Soldofsky, Richard Stevenson, and an anonymous referee are gratefully acknowledged. This research was supported by the Old Gold Summer Fellowship of the University of Iowa.


A nonparametric statistical procedure is employed to examine the returns to speculators in wheat, corn, and soybeans futures markets. We find that the theory of normal backwardation is supported. Moreover, the presence of the risk premiums to speculators tends to be more prominent in recent years than in earlier years. We also find that large wheat speculators as a whole possessed some superior forecasting ability. The evidence is inconsistent with the hypothesis that commodity futures prices are unbiased estimates of the corresponding future spot prices.