Do markets correct for smoothing in USDA crop production forecasts? Evidence from private analysts and futures prices

Olga Isengildina-Massa, Berna Karali, Scott H. Irwin

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish (US)
Pages (from-to)559-583
Number of pages25
JournalApplied Economic Perspectives and Policy
Volume39
Issue number4
DOIs
StatePublished - Dec 2017

Keywords

  • Anticipation of information
  • Corn
  • Market efficiency
  • Market surprise
  • Predictable and unpredictable components of news
  • Price reaction
  • Smoothing
  • Soybeans
  • Wheat

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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