Premium
Do Markets Correct for Smoothing in USDA Crop Production Forecasts? Evidence from Private Analysts and Futures Prices
Author(s) -
IsengildinaMassa Olga,
Karali Berna,
Irwin Scott H
Publication year - 2017
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppx032
Subject(s) - futures contract , smoothing , inefficiency , surprise , production (economics) , economics , econometrics , agribusiness , financial economics , microeconomics , agriculture , mathematics , statistics , psychology , social psychology , ecology , biology
This study evaluates whether smoothing (positive correlation in subsequent revisions) in USDA corn, soybean, and wheat production forecasts is likely to result in misallocation of economic resources. Smoothing, like any other type of forecast inefficiency, implies that some of the information in these forecasts is predictable. Based on the evidence of smoothing, we decomposed market surprise and forecast revision into predictable and unpredictable components. Our results show that futures markets tended to react only to the unpredictable component, therefore indicating that market participants were aware of smoothing and adjusted for it in forming their price expectations.