THE SUPPLY OF STORAGE UNDER HETEROGENEOUS EXPECTATIONS Report as inadecuate




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Expected prices for storable commodities often lie below spot prices plus interest and marginal storage charges. Recently this gap has been explained as the value of a call option held by a representative storer whenever a positive probability exists that stocks could dwindle to zero. However, the probability of an aggregate stock-out is effectively zero in most markets most of the time. This paper presents an alternative model that explains the gap as an equilibrium between fundamentals traders and noise traders. Applications of the model suggest that rational agents make up 84 percent of the U.S. copper market, and more than 95 percent of the corn and wheat markets.

Keywords: storage ; heterogeneous expectations ; noise traders

Subject(s): Marketing

Issue Date: 1999-12

Publication Type: Journal Article

PURL Identifier: http://purl.umn.edu/15149 Published in: Journal of Agricultural and Applied Economics, Volume 31, Number 3 Page range: 461-474

Total Pages: 14

Record appears in: Southern Agricultural Economics Association (SAEA) > Journal of Agricultural and Applied Economics





Author: Frechette, Darren L.

Source: http://ageconsearch.umn.edu/record/15149?ln=en







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