Testing for weak-form efficiency of crude palm oil spot and future markets: New evidence from a GARCH unit root test with multiple structural breaks

Hooi Hooi Lean, Russell Leigh Smyth

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

Abstract

There is a sizeable literature that tests for weak-form efficiency in commodity and energy spot and future prices. While many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change, the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity. We apply a recently developed generalized autoregressive conditional heteroscedasticity (GARCH) unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak-form efficiency than that found using tests that fail to allow for conditional heteroscedasticity. Our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices.
Original languageEnglish
Pages (from-to)1710 - 1721
Number of pages12
JournalApplied Economics
Volume47
Issue number16
DOIs
Publication statusPublished - 2015

Cite this

@article{ccc0950d54d84cae8b1a9036090e5862,
title = "Testing for weak-form efficiency of crude palm oil spot and future markets: New evidence from a GARCH unit root test with multiple structural breaks",
abstract = "There is a sizeable literature that tests for weak-form efficiency in commodity and energy spot and future prices. While many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change, the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity. We apply a recently developed generalized autoregressive conditional heteroscedasticity (GARCH) unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak-form efficiency than that found using tests that fail to allow for conditional heteroscedasticity. Our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices.",
author = "Lean, {Hooi Hooi} and Smyth, {Russell Leigh}",
year = "2015",
doi = "10.1080/00036846.2014.1002905",
language = "English",
volume = "47",
pages = "1710 -- 1721",
journal = "Applied Economics",
issn = "0003-6846",
publisher = "Taylor & Francis",
number = "16",

}

Testing for weak-form efficiency of crude palm oil spot and future markets: New evidence from a GARCH unit root test with multiple structural breaks. / Lean, Hooi Hooi; Smyth, Russell Leigh.

In: Applied Economics, Vol. 47, No. 16, 2015, p. 1710 - 1721.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Testing for weak-form efficiency of crude palm oil spot and future markets: New evidence from a GARCH unit root test with multiple structural breaks

AU - Lean, Hooi Hooi

AU - Smyth, Russell Leigh

PY - 2015

Y1 - 2015

N2 - There is a sizeable literature that tests for weak-form efficiency in commodity and energy spot and future prices. While many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change, the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity. We apply a recently developed generalized autoregressive conditional heteroscedasticity (GARCH) unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak-form efficiency than that found using tests that fail to allow for conditional heteroscedasticity. Our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices.

AB - There is a sizeable literature that tests for weak-form efficiency in commodity and energy spot and future prices. While many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change, the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity. We apply a recently developed generalized autoregressive conditional heteroscedasticity (GARCH) unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak-form efficiency than that found using tests that fail to allow for conditional heteroscedasticity. Our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices.

U2 - 10.1080/00036846.2014.1002905

DO - 10.1080/00036846.2014.1002905

M3 - Article

VL - 47

SP - 1710

EP - 1721

JO - Applied Economics

JF - Applied Economics

SN - 0003-6846

IS - 16

ER -