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Biofuel policy and stock price in imperfectly competitive markets

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  • Tepe, Fatma Sine

Abstract

The increase in demand for corn as a biofuel feedstock has had a significant impact on the agricultural markets in the United States. These include seed, fertilizer and livestock markets all of which have become more concentrated with mergers and acquisitions over time. Oligopoly theory suggests that corn input suppliers likely benefit from policies that support corn markets, while meat companies likely lose. This study investigates, in particular, the effect of increased corn-ethanol production on agribusiness stock prices. A two-factor capital asset pricing model (CAPM) is developed and estimated by OLS and FGLS. The results indicate that increases in corn price have positive effect on excess stock returns of seed and fertilizer companies, while the impact is negative for meat companies.

Suggested Citation

  • Tepe, Fatma Sine, 2010. "Biofuel policy and stock price in imperfectly competitive markets," ISU General Staff Papers 201001010800002642, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201001010800002642
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    Cited by:

    1. Kemp-Benedict, Eric, 2012. "The national bioenergy investment model: Technical documentation," MPRA Paper 37835, University Library of Munich, Germany.

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