Price Discovery through Crude Palm Oil Futures: An Economic Evaluation

This paper examines the forward pricing efficiency of the local crude palm oil (CPO) futures market. In an efficient market, the relevant signal to be used by -the producers, traders and processors is simply the futures price. The forward pricing efficiency is measured in terms of the forecasting ability of Malaysian crude palm oil futures price on physical price. The relative predictive power of futures price is compared with the various forecasts estimated from proven forecasting techniques like moving average, exponential smoothing, Box Jenkins and econometric. The relative predictability of futures price as a forecast for spot prices during various months before delivery is also measured.