THE EFFECTS OF DECISION-MAKING ON FUTURES PRICE VOLATILITY

Citation
Da. Hennessy et Ti. Wahl, THE EFFECTS OF DECISION-MAKING ON FUTURES PRICE VOLATILITY, American journal of agricultural economics, 78(3), 1996, pp. 591-603
Citations number
33
Categorie Soggetti
Economics,"AgricultureEconomics & Policy
ISSN journal
00029092
Volume
78
Issue
3
Year of publication
1996
Pages
591 - 603
Database
ISI
SICI code
0002-9092(1996)78:3<591:TEODOF>2.0.ZU;2-D
Abstract
Existing literature on commodity futures price volatility emphasizes t ime to expiration and the resolution of uncertainty. In this paper we stress the supply and demand inflexibilities arising from decision mak ing. A decision made on the supply (demand) side makes future supply ( demand) responses less elastic. Therefore, a shock arising after a dec ision is made is more effective in changing the futures price than a s hock before the decision is made. The results support the time-to-matu rity hypothesis, but do not conflict with the state variable hypothese s of futures price volatility. Evidence supporting the impacts of infl exibilities are presented for corn, soybean, and wheat contracts.