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The Impacts of USDA Reports on Pre-Harvest Volatility Expectations: the Case of Corn New Crop Futures

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  • Yang, Yao
  • McKenzie, Andrew

Abstract

This paper investigates the information value of USDA crop reports in terms of their impacts on rational agents’ expectations of future realized price volatility. While it is well known that uncertainty – proxied by options market implied volatility – is reduced in the wake of USDA reports, this is the first study to examine if information contained in USDA reports update rational volatility expectations. We use a Hamilton-type approach to reveal that August crop reports are “newsworthy” – at least in some years – in refining rational agents’ volatility expectations through harvest-time. However, results also show that corn options markets are slow to adjust to this news with both ex-post information about realized volatility and crop report news contributing to agents’ volatility expectations for several days following the report release date, highlighting potential inefficiencies in options market volatility forecasts.

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Handle: RePEc:ags:nccc24:379014
DOI: 10.22004/ag.econ.379014
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