Essays On The Crude Palm Oil Futures Market

This thesis contributes to the existing literature by presenting the substantive essays on the Malaysian CPO futures market. In the first essay, the market efficiency test for the long-run, short-run and relative efficiency is applied under both open-outcry and electronic trading systems in the Malaysian Derivatives Markets. The findings reveal that the Malaysian CPO futures market is efficient in the long-run but inefficient in the short-run for both trading systems. The relative efficiency ratio test suggests that the level of inefficiency is higher in the electronic trading system and tends to increase with time to maturity. The second essay examines price discovery by utilizing the cost-of-carry model with incorporating an endogenously convenience yield. This model also is able to detect the market characteristics whether in backwardation or contango. The main result shows that the futures price is the main contributor to the price discovery function in the Malaysian CPO market. Furthermore, the long-run backwardation is significantly exist in the CPO futures market. Another finding reveals the positive CPO convenience yields and its value increases with time to maturity. The third and final essay explores the long memory properties of futures-spot basis and interest cost on market efficiency. The empirical result shows that the CPO futures basis can be characterised by both long memory and structural breaks. Moreover, the interest cost also shows the evidence of the long memory component. These findings are not consistent with unbiasedness hypothesis and therefore, past prices can be used to predict the future spot price. A new finding reveals that the level of persistence in futures basis and interest cost, increases when time to maturity increases.