What explains the orange juice puzzle: Sentiment, smart money, or fundamentals?

Pin-Huang Chou, Chia-Hsun Hsieh and Carl Hsin-Han Shen

Journal of Financial Markets, 2016, vol. 29, issue C, 47-65

Abstract: In the famous “orange juice puzzle,” a large amount of inexplicable price volatility arises in frozen concentrated orange juice (FCOJ) futures contracts. Temperature is considered the most important fundamental factor in this market, but its explanatory power is low and limited, so are those of various consumer and stock market sentiment measures that reflect the noise traders׳ opinions. In contrast, shifts in a survey-based index called the Consensus Bullish Sentiment Index (CBSI), which reflect the overall opinions of professional investors, provide the largest explanatory power among all measures. Further analysis reveals that bullish shifts in the CBSI are followed by higher FCOJ returns but lower conditional volatility, thus supporting the notion that the index reflects the smart money effect.

Keywords: Orange juice; Temperature; Investor sentiment; Smart money (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:29:y:2016:i:c:p:47-65

DOI: 10.1016/j.finmar.2015.11.001

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