Deja vu all over again – China retaliates, and again soybeans are on the list.

Also a lot of other food items.

Some people (the now banned CoRev) argued against the usefulness of futures, despite Chinn and  Olivier Coibion (Journal of Futures Markets, 2014), in which we evaluate — among other commodities — soybean prices. V. Fernandez (Resources Policy, 2017)  conducted an update of our work, confirming our results.

To see our results, consider estimating the following equation, using OLS.

st+k – st = α + β(ft,k – st) + ut+k

Where st is the log spot rate at time t, ft,k is the log futures rate for a transaction k periods hence, and u is an error term that is under the efficient markets hypothesis null a random expectations error (an innovation).

In Table I (from Chinn and Coibion, 2014), I highlight in yellow the SOYBEAN results of this regression for soybeans, at the 3, 6 and 12 month horizons.

Keep reading this article on Econbrowser Blog - James Hamilton & Menzie Chinn.