Is there a term structure of futures volatilities? Reevaluating the Samuelson hypothesis

Hendrik Bessembinder, Jay F. Coughenour, Paul J. Seguin, Margaret Monroe Smoller

Research output: Contribution to journalArticle

54 Scopus citations

Abstract

The Samuelson hypothesis implies that the volatility of futures price changes increases as a contract's delivery date nears. In markets where the Samuelson hypothesis holds, accurate valuation of futures-related derivatives requires that a term structure of futures volatilities be estimated. We develop a framework for predicting the markets where the Samuelson hypothesis should be expected to hold. Unlike a prominent reinterpretation of the hypothesis, our work shows that clustering of information flows near the delivery date is not a necessary condition. We show instead that the hypothesis is generally supported in markets where spot price changes include a predictable temporary component; we argue that this condition is much more likely to be met in markets for real assets than for financial assets. Finally, we provide empirical evidence consistent with our predictions.

Original languageEnglish (US)
Pages (from-to)45-58
Number of pages14
JournalJournal of Derivatives
Volume4
Issue number2
DOIs
StatePublished - Dec 1 1996

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Is there a term structure of futures volatilities? Reevaluating the Samuelson hypothesis'. Together they form a unique fingerprint.

  • Cite this