Storage Under Backwardation: A Direct Test of the Wright-Williams Conjecture

34 Pages Posted: 7 Jan 2009

See all articles by Andrew Coleman

Andrew Coleman

Motu Economic and Public Policy Research Trust

Date Written: October 2008

Abstract

Commodities are often stored when the spot price exceeds the future price in a central market. Wright and Williams conjectured that inventories are held in locations far from the central market on these occasions. In these locations the spot price is lower than the price for forward delivery because transport costs are temporarily high. This hypothesis has not been directly tested, because prices for forward delivery are not normally available at non-central locations. This paper uses an example where these prices exist to test the hypothesis. The evidence, from the late nineteenth century corn markets in Chicago and New York, strongly supports the conjecture.

Keywords: Inventories, commodity prices, transport costs

JEL Classification: L92, N71, Q13

Suggested Citation

Coleman, Andrew, Storage Under Backwardation: A Direct Test of the Wright-Williams Conjecture (October 2008). Available at SSRN: https://ssrn.com/abstract=1323524 or http://dx.doi.org/10.2139/ssrn.1323524

Andrew Coleman (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

HOME PAGE: http://www.motu.org.nz

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