Storage, Slow Transport, and the Law of One Price: Evidence from the Nineteenth Century U.S. Corn Market

Andrew Coleman
Additional contact information
Andrew Coleman: Cattaneo University, LIUC and CESPRI, Bocconi University

No 502, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: This paper develops a rational expectations model of physical arbitrage incorporating storage and trade to explain how markets are integrated when trade is costly and non-instantaneous. The paper finds a striking empirical verification of the model from an analysis of the late nineteenth century corn markets in Chicago and New York. The dataset is particularly high quality and includes weekly data on spot and future prices, storage quantities and the cost of three modes of transport for a fourteen year period. In keeping with the model, it is shown that the New York spot price frequently exceeded both the New York futures price and the Chicago spot price plus the transport cost by several percent when inventories in New York were low, but not when they were high. The paper also derives a supply of storage curve for New York corn and argues it can be explained as the outcome of rational arbitrage when transport is slow.

Pages: 53 pages
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://fordschool.umich.edu/rsie/workingpapers/Papers501-525/r502.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:502

Access Statistics for this paper

More papers in Working Papers from Research Seminar in International Economics, University of Michigan Contact information at EDIRC.
Bibliographic data for series maintained by FSPP Webmaster ().