IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

The Supply Of Storage Under Heterogeneous Expectations

  • Frechette, Darren L.
Registered author(s):

    Expected prices for storable commodities often lie below spot prices plus interest and marginal storage charges. Recently this gap has been explained as the value of a call option held by a representative storer whenever a positive probability exists that stocks could dwindle to zero. However, the probability of an aggregate stock-out is effectively zero in most markets most of the time. This paper presents an alternative model that explains the gap as an equilibrium between fundamentals traders and noise traders. Applications of the model suggest that rational agents make up 84 percent of the U.S. copper market, and more than 95 percent of the corn and wheat markets.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

    Volume (Year): 31 (1999)
    Issue (Month): 03 (December)

    in new window

    Handle: RePEc:ags:joaaec:15149
    Contact details of provider: Web page:

    More information through EDIRC

    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.:

    as in new window
    1. Frankel, Jeffrey A & Froot, Kenneth A, 1986. "Understanding the U.S. Dollar in the Eighties: The Expectations of Chartists and Fundamentalists," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 24-38, Supplemen.
    2. Foster, Kenneth A. & Mwanaumo, Anthony, 1995. "Estimation of dynamic maize supply response in Zambia," Agricultural Economics, Blackwell, vol. 12(1), pages 99-107, April.
    3. Thijssen, Geert, 1994. "Supply Response and Dynamic Factor Demand of Dutch Dairy Farms," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 21(2), pages 241-58.
    4. Brennan, Donna & Williams, Jeffrey & Wright, Brian D, 1997. "Convenience Yield without the Convenience: A Spatial-Temporal Interpretation of Storage under Backwardation," Economic Journal, Royal Economic Society, vol. 107(443), pages 1009-22, July.
    5. Nikolaos T. Milonas & Stavros B. Thomadakis, 1997. "Convenience yields as call options: An empirical analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 17(1), pages 1-15, 02.
    6. Chavas, Jean-Paul, 1999. "On The Economic Rationality Of Market Participants: The Case Of Expectations In The U.S. Pork Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(01), July.
    7. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
    8. Pindyck, Robert S., 1990. "Inventories and the short-run dynamics of commodity prices," Working papers 3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Miranda, Mario J, 1998. "Numerical Strategies for Solving the Nonlinear Rational Expectations Commodity Market Model," Computational Economics, Society for Computational Economics, vol. 11(1-2), pages 71-87, April.
    10. Nerlove, Marc & Fornari, Ilaria, 1998. "Quasi-rational expectations, an alternative to fully rational expectations: An application to US beef cattle supply," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 129-161.
    11. Winter-Nelson, Alex, 1996. "Expectations, supply response, and marketing boards: An example from Kenya," Agricultural Economics, Blackwell, vol. 14(1), pages 21-31, April.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ags:joaaec:15149. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.