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Grain Price Expectations of Illinois Farmers and Grain Merchandisers
Author(s) -
Eales James S.,
Engel Brian K.,
Hauser Robert J.,
Thompson Sarahelen R.
Publication year - 1990
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243040
Subject(s) - futures contract , overconfidence effect , proxy (statistics) , futures market , variance (accounting) , economics , loss aversion , risk aversion (psychology) , microeconomics , financial economics , econometrics , expected utility hypothesis , statistics , psychology , mathematics , accounting , social psychology
The study's purpose is to measure the extent to which futures and option prices reflect the subjective price distribution of a subset of market participants, farmers, and grain merchandisers in Illinois. Findings suggest that in most instances the futures price is an appropriate proxy for expected price. However, volatilities implied by option premia usually overestimate the subjective variances of producers and merchandisers. These differences between individual and market expectations of variance are consistent with findings of overconfidence in the psychology literature and should be considered by analysts when making observations about hedging decisions and risk aversion.