# Do futures have predictive value?

Futures closely mirror their underlying, as can be seen in the charts below. Eventually, at expiration, they reach the value of the underlying. However, they seem to show no extra information about the underlying's future; i.e. they don't trend any closer to the underlying's value at expiration than the underlying itself does.

Below is an underlying, SPY.

And below is the ES futures Dec 2012 contract.

However, it is possible to calculate how often a given future has been directionally correct. For instance, SPY closed at 142.79 on Dec 21, 2012. To determine the directional predictive power of the ES future, one would run the following pseudocode in a backtesting system:

$SPY_close = 142.79$future_predicted_direction = 0
$days = 0 FOR$day (2012-01-01 .. 2012-12-21) {
$days++ IF$EOD_quotes["SPY"][$day] >$SPY_close
THEN $future_predicted_direction +=$EOD_quotes["ES"][$day] <=$EOD_quotes["SPY"][$day] ELSE$future_predicted_direction += $EOD_quotes["ES"][$day] >= $EOD_quotes["SPY"][$day]
}

print "ES futures correctly predicted direction $future_predicted_direction out of$days days, that is, "
+ int($future_predicted_direction /$days * 100) + "% of the time."


Are there any studies on this? Do futures have any predictive power?

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## migrated from money.stackexchange.comFeb 25 '13 at 16:00

This question came from our site for people who want to be financially literate.

I personally OKed the migration from Money.SE as there is a whole academic field called "price discovery" that deals with this particular issue. Someone will be along shortly to answer your question. –  chrisaycock Feb 25 '13 at 16:09