Is There a Term Structure of Futures Volatilities? Reevaluating the Samuelson Hypothesis

The Samuelson hypothesis claims that the volatility of futures prices increases as the contract delivery date approaches. The authors argue that the Samuelson hypothesis holds only when investors expect that changes in the price of the underlying commodity will be reversed in the future. These expected price reversals feed into futures price volatility through changes in the commodity’s perceived cost of carry, which the authors argue will be the case only for futures contracts based on “real” commodities. The authors present empirical evidence demonstrating that the Samuelson hypothesis does not hold for contracts based on Treasury bonds or the S&P 500 Index.