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Abstract

The deregulation of agricultural markets in South Africa led to the establishment of a futures market for agricultural products, which was opened in January 1995. Commodity futures markets should be efficient to play most effective role in price risk management. This paper tests for weak-form efficiency in the South African Future markets for wheat and sunflower seeds by examining the predictability of daily futures price changes. The results suggest that futures price changes for both wheat and sunflower seeds are partially predictable from past price information. The implication is that past price information does contain additional information that could be used to forecast the future price once the current future price is known. But when taking into account the brokerage costs and the time value of money, out-of-sample predictive performance of the model indicates that trading decisions based on the direction of predicted futures price changes do not lead to profitable trades for either crop. Hence, the evidence suggests that there is no strong support for weak-form inefficiency in South African futures markets for wheat and sunflower seeds. The results further suggest that there is no trend in market efficiency over time for wheat and sunflower seeds, except for the wheat December contract.

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