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The Impact of Measurement Error on Estimates of the Price Reaction to USDA Crop Reports

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Author Info
Aulerich, Nicole M.
Irwin, Scott H.
Nelson, Carl H.

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Abstract

This paper investigates the impact of USDA crop production reports in corn and soybean futures markets. The analysis is based on all corn and soybean production reports released over 1970-2006. The empirical analysis compares the typical OLS event study approach to the new Identification by Censoring (ITC) technique. Corn and soybean production reports are analyzed both separately and together for impact in corn and soybean futures prices. ITC proves to be the more useful method because it avoids the pitfalls of errors in variables that cause downward bias in OLS coefficients. Price reaction coefficients estimated via ITC are one to four times larger than OLS estimates for a one price and one event analysis. In the two price, two event case, ITC estimates are one to six times larger. Market reaction to the unanticipated information in USDA forecasts is substantially larger than estimated in previous studies.

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Paper provided by NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2007 Conference, April 16-17, 2007, Chicago, Illinois with number 37579.

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Date of creation: Apr 2007
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Handle: RePEc:ags:nccsci:37579

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Related research
Keywords: event study; USDA Crop Production reports; measurement error; Identification Through Censoring;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Roberto Rigobon & Brian Sack, 2006. "Noisy Macroeconomic Announcements, Monetary Policy, and Asset Prices," NBER Working Papers 12420, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Good, Darrel L. & Irwin, Scott H., 2006. "Understanding USDA Corn and Soybean Production Forecasts: Methods, Performance and Market Impacts over 1970 - 2005," AgMAS Project Research Reports 37514, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics. [Downloadable!]
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  3. Orazem, Peter & Baur, Robert F., 2003. "The Rationality and Price Effects of USDA Forecasts of Oranges," Staff General Research Papers 11133, Iowa State University, Department of Economics.
  4. Garcia, Philip & Irwin, Scott H. & Leuthold, Raymond M. & Yang, Li, 1997. "The value of public information in commodity futures markets," Journal of Economic Behavior & Organization, Elsevier, vol. 32(4), pages 559-570, April. [Downloadable!] (restricted)
  5. Olga Isengildina & Scott H. Irwin & Darrel L. Good, 2006. "Are Revisions to USDA Crop Production Forecasts Smoothed?," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 88(4), pages 1091-1104, November. [Downloadable!] (restricted)
  6. Egelkraut, Thorsten M. & Garcia, Philip & Irwin, Scott H. & Good, Darrel L., 2003. "An Evaluation of Crop Forecast Accuracy for Corn and Soybeans: USDA and Private Information Agencies," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(01), April. [Downloadable!]
  7. Falk, Barry L. & Orazem, Peter, 2003. "Measuring Market Responses to Error-Ridden Government Announcements," Staff General Research Papers 11096, Iowa State University, Department of Economics.
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