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

The Samuelson hypothesis implies that the volatility of futures price changes increases as a contract's delivery date nears. In markets where the Samuelson hypothesis holds, accurate valuation of options and related derivatives on futures requires that a term structure of futures volatilities be estimated. We develop a framework for predicting those markets where the hypothesis should be expected to hold. In contrast to a prominent reinterpretation of the hypothesis, we show that clustering of information flows near the delivery date is not necessary. We show instead that the hypothesis will be supported in markets where spot price changes contain a predictable temporary component, and we argue that this condition is much more likely to be supported in markets for real assets than for financial assets. Finally, we provide empirical evidence consistent with our predictions