Effects of Decisionmaking on the Futures Price Volatility, The

David Hennessy and Thomas Wahl

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Existing literature on commodity futures price volatility emphasizes time to expiration and the resolution of uncertainty. In this paper we stress the supply and demand inflexibilities arising from decision making. A decision made on the supply (demand) side makes future supply (demand) responses less elastic. Therefore, a shock arising after a decision is made is more effective in changing the futures price than a shock before the decision is made. The results support the time-to-maturity hypothesis, but do not conflict with the state variable hypotheses of futures price volatility. Evidence supporting the impacts of inflexibilities are presented for corn, soybean, and wheat contracts.

Date: 1996-08-01
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Published in American Journal of Agricultural Economics, August 1996, vol. 78 no. 3, pp. 591-603

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Journal Article: The Effects of Decision Making on Futures Price Volatility (1996)
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