The efficiency of the future market for Brazilian live cattle

Résumé 0

"Purpose – This paper investigates the efficiency of the futures market for Brazilian live cattle to predict prices in the spot market of Argentinian steers. The lack of derivatives related to the beef market in the futures exchange in Argentina was the main factor behind the decision to analyse the efficiency of the Brazilian live cattle futures as a predictor of spot prices of Argentinian steers. Design/methodology/approach – We opted to employ the efficient markets hypothesis to approach the question. The hypothesis that futures prices are non-biased predictors of spot prices is considered to be a true proposition only if the efficient markets hypothesis is not rejected. In methodological terms, the efficiency of the futures market for Brazilian live cattle relative to the spot market of Argentinian steers was verified using the Johansen co-integration test. A vector error correction model – which enables verification of the question of bias in the prediction of prices, was used to estimate the long-term equilibrium between spot and futures prices. Findings/originality/value – The results provided no evidence of bias in the prediction of prices and found the predictive efficiency of the Brazilian live cattle futures market relative to the spot market of Argentinians steers to be approximately 80 per cent. Thus, the future prices of Brazilian live cattle can expressly assist participants in the Argentinian beef production chain to predict the spot prices of steers."