Abstract
This article identifies some shortcomings in the tests of the Keynesian hypothesis implemented so far. The previous studies either assume integration between futures and equity markets or rely on a methodology that might produce incorrect inferences regarding the presence of a futures risk premium. This article investigates the normal backwardation theory using a methodology exempt from these problems. While short and long hedgers in agricultural commodity futures markets transfer their risk to one another at no cost, the Keynesian hypothesis is found to have some merits in describing the way financial and metal futures prices are set.
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