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- Is there a term structure of futures volatilities? Reevaluating the Samuelson Hypothesis
Is there a term structure of futures volatilities? Reevaluating the Samuelson Hypothesis
- By Hendrik Bessembinder
- Published 12/17/2007
- Price modeling
- Unrated
Hendrik Bessembinder
Hendrik (Hank) Bessembinder holds the A. Blaine Huntsman Presidential Chair in Finance at the David Eccles Business School of the University of Utah. He completed his Ph.D. in Finance at the University of Washington in 1986, and previously held faculty positions at the Goizueta Business School of Emory University, the Simon School of Business of the University of Rochester and at the Arizona State University College of Business. Hank’s research and teaching interests include Financial Management, International Finance, Stock Markets, Foreign Exchange Markets, Energy Markets, Trading Costs, Trading Strategies, and Financial Risk Management. His research has been published in the top Finance outlets, including the
Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies.
He is Managing Editor of the Journal of Financial and Quantitative Analysis, and Associate Editor of the Journal of Finance, the Journal of Financial Economics, and the Journal of Financial Markets.
Hank has taught university courses in corporate finance, investments, financial markets, and financial engineering, at the masters and doctoral levels, having been nominated for and received teaching awards. He has been a consultant to the New York Stock Exchange, Goldman Sachs, Barclay’s Global Investors, the United States Department of Justice, the United States Securities and Exchange Commission, the Federal Energy Regulatory Commission, the Commodities Futures Trading Commission, Analysis Group, and Cornerstone Research, among others.
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 those markets where the Samuelson hypothesis should be expected to hold.
In contrast to a prominent reinterpretation of the hypothesis, we show that clustering of information flows near the delivery date is not a necassary condition. We show instead that the hypothesis will generally be supported in markets where spot price changes include a predictable temporary component, and 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.