FUTURES MARKET EFFICIENCY, THE UNBIASEDNESS HYPOTHESIS AND VARIANCE‐BOUNDS TESTS: THE CASE OF THE FTSE‐100 FUTURES CONTRACT*

Abstract

ABSTRACT The efficiency of futures markets is critical to their price discovery role. This paper investigates the joint hypothesis of market efficiency and unbiasedness of futures prices for the FTSE‐100 stock index futures contract. Unlike previous studies, it tests for both long‐run and short‐run efficiency using cointegration and error correction models. Variance‐bounds tests are developed and utilized for examining the question of efficiency. Results show that the market is efficient and provides an unbiased estimate of future spot prices for one and two months away from expiration. However, for three and more months away from expiration this is not the case, which has implications for the users of this market.

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