PRICE INSTABILITY AND COMMODITY FUTURES MARKETS

The inability of individual developing nations to provide widescale commodity price support and the continual renegotiation of international commodity agreements have engendered a search for alternative mechanisms to reduce price volatility for soft commodities. One possibility is the use of futures markets. This paper takes four commodities, cocoa, coffee, sugar and wheat and analyzes the efficiency of associated futures markets in terms of price discovery and risk reduction. In essence, all four markets exhibit efficiency and therefore provide, in theory, a viable policy alternative for developing economies.