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Does Noise in Market Expectations Dilute Price Reactions to USDA Reports?

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  • Karali, Berna
  • Isengildina Massa, Olga
  • Irwin, Scott H.

Abstract

A long‐standing puzzle in commodity markets is the low explanatory power of supply and demand fundamentals for explaining the variability of prices in these markets. We apply an instrumental variable correction for measurement errors to investigate how noise in the surprise component of USDA Crop Production reports affects estimated price responses in corn, soybeans, and wheat futures markets from 1970 to 2016. Our findings demonstrate that after correcting for measurement error in market surprises, the explanatory power of our models increases about threefold and often exceeds 70%. This is compelling evidence that fundamental supply news play an important role in explaining grain futures price movements.
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  • Karali, Berna & Isengildina Massa, Olga & Irwin, Scott H., 2018. "Does Noise in Market Expectations Dilute Price Reactions to USDA Reports?," 2018 Annual Meeting, August 5-7, Washington, D.C. 273973, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea18:273973
    DOI: 10.22004/ag.econ.273973
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    Cited by:

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    2. Kovacevic, Vlado & Subić, Jonel & Jankovic, Irena, 2020. "Development of soft commodity derivative market in function of the risk management in CEE," MPRA Paper 106303, University Library of Munich, Germany.
    3. Nicolas Legrand, 2023. "War in Ukraine: The rational “wait‐and‐see” mode of global food markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(2), pages 626-644, June.
    4. Kwas, Marek & Paccagnini, Alessia & Rubaszek, Michał, 2022. "Common factors and the dynamics of cereal prices. A forecasting perspective," Journal of Commodity Markets, Elsevier, vol. 28(C).

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