The Effects of Decision Making on Futures Price Volatility

13 Pages Posted: 24 Mar 2020

See all articles by David Hennessy

David Hennessy

Iowa State University

Thomas I. Wahl

Washington State University

Date Written: August 1996

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.

Keywords: flexibility, futures volatility, planting date, time to maturity, G130, Q130

Suggested Citation

Hennessy, David and Wahl, Thomas I., The Effects of Decision Making on Futures Price Volatility (August 1996). American Journal of Agricultural Economics, Vol. 78, Issue 3, pp. 591-603, 1996, Available at SSRN: https://ssrn.com/abstract=3558984 or http://dx.doi.org/10.2307/1243277

David Hennessy (Contact Author)

Iowa State University

Thomas I. Wahl

Washington State University

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