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The effects of decision making on futures price volatility
- Hennessy, D.A., Wahl, T.I.
- American journal of agricultural economics 1996 v.78 no.3 pp. 591-603
- corn, soybeans, wheat, decision making, economic impact, supply balance, demand elasticities, production functions, regression analysis, uncertainty, United States
- 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.