THE EFFECTS OF DECISION-MAKING ON FUTURES PRICE VOLATILITY

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.