Seasonalities in cotton prices

Abstract

This thesis investigates daily seasonality in the price of US cotton. The period examined is 1988 to 2002. The Monday effect in asset prices is well documented in the literature. Cotton has been used as a natural fibre for more than 5000 years. Today, it contributes $50 billion a year and provides tens of thousands of job opportunities in the US economy. Conventional OLS models are employed to examine the Monday effect in the change in the futures and spot prices of cotton. The Newey & West (1987) adjustment is utilised to control for heteroskedasticity and autocorrelation in the error terms. There are three major results. First, significant negative Monday returns persist in the change in the futures price and the change in the spot price. Second, a bad Friday futures factor might be a possible explanation for the Monday effect. Third, the Monday effect is stable over the period examined. To the best of my knowledge, previous research has not examined the Monday effect in the US cotton market.