ABSTRACT
This chapter examines the degree of efficiency with which futures are priced. Market efficiency has been defined by G. R. Jensen as follows. 'A market is efficient with respect to information set, if it is impossible to make economic profits by trading on the basis of information set'. The literature has recognised three different information sets, all past prices (weak efficient), all public information (semi-strong efficient) and all information, both public and private (strong efficient). The chapter examines the efficiency of index futures and the considerable evidence on time related anomalies in index futures. In the absence of a satisfactory economic explanation, these anomalies contradict weak form market efficiency. One way of testing for weak efficiency in futures markets is to examine whether trading rules based on past prices are capable of generating profits. There have been some studies of the performance of US futures funds that have a manager, and trading decisions are usually based on trading rules.
