THE SUPPLY OF STORAGE UNDER HETEROGENEOUS EXPECTATIONS

Darren L. Frechette

Journal of Agricultural and Applied Economics, 1999, vol. 31, issue 3, 14

Abstract: 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: Marketing (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:joaaec:15149

DOI: 10.22004/ag.econ.15149

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