The Impact of Measurement Error on Estimates of the Price Reaction to USDA Crop Reports
AbstractThis 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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Bibliographic InfoPaper 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.
Date of creation: Apr 2007
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event study; USDA Crop Production reports; measurement error; Identification Through Censoring;
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