Do Markets Correct for Smoothing in USDA Crop Production Forecasts? Evidence from Private Analysts and Futures Prices

Olga Isengildina-Massa, Berna Karali and Scott H Irwin
Authors registered in the RePEc Author Service: Olga Isengildina Massa

Applied Economic Perspectives and Policy, 2017, vol. 39, issue 4, 559-583

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.

Keywords: market efficiency; smoothing; market surprise; price reaction; anticipation of information; corn; soybeans; wheat; predictable and unpredictable components of news (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Working Paper: Market Reaction to Inefficiencies in USDA Crop Production Forecasts (2016)
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