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OVER‐REACTIONS IN US AGRICULTURAL COMMODITY PRICES
Author(s) -
Allen M. T.,
Ma C. K.,
Pace R. D.
Publication year - 1994
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.1994.tb00398.x
Subject(s) - commodity , economics , rationality , cash , agriculture , spot contract , financial economics , monetary economics , futures contract , finance , ecology , political science , law , biology
The purpose of this paper is to test rationality in agricultural commodity markets. We investigate the price‐adjustment process after significant events using abnormally large cash commodity price changes as proxies for the arrivals of significant events in the markets. The evidence suggests that market rationality is violated. Generally, agricultural commodity prices tend to reverse after significant events. This is consistent with the over‐reaction hypothesis which maintains that traders in spot commodity markets over‐weight more recent information and under‐weight prior information in their expectations.