Prognoses for a Non-Predictable Discounted Commodity Price Process

Brian Wright (), Eugenio Bobenrieth and Eugenio S. A.

No 19, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: We consider the behavior of the price of a continuously stored commodity, for which discounted price is a non-constant martingale, and thus not-predictable. We prove that the discounted price realization is within any given neighborhood of zero, with any given probability less than 1, beyond a finite state-independent horizon. Furthermore, with probability 1, the path of discounted price realizations will lie permanently within any given neighborhood of zero beyond a finite state-dependent horizon. The martingale property implies that for a sufficiently long series of initial dates, the average of returns over a given horizon approximates the opportunity cost of capital arbitrarily exactly. But the average of returns for the same initial dates, over a sufficiently extended horizon, reflects the eventual and permanent downward divergence of price realizations from any profile of conditional expectations.

Keywords: Non-Predictable; Price; Speculation (search for similar items in EconPapers)
JEL-codes: D84 G12 G13 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:19

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