Title: | Do Asset Prices Reflect Fundamentals? Freshly Squeezed Evidence from the OJ Market |
Authors: | Boudoukh, Jacob Richardson, Matthew Shen, YuQing Whitelaw, Robert F. |
Issue Date: | 6-Apr-2005 |
Series/Report no.: | S-DRP-03-05 |
Abstract: | The behavioral finance literature cites the frozen concentrated orange juice (FCOJ) futures market as a prominent example of the failure of prices to reflect fundamentals. In contrast, we show that when theory clearly identifies the fundamental, e.g.,temperatures close to or below freezing, there is a close link between FCOJ prices and that fundamental. Using a simple, theoreticallymotivated, nonlinear, state dependent model, we can explain approximately 50% of the return variation on days with freezing temperatures. Moreover, while these observations represent less than 4.5% of the winter sample, they account for two-thirds of the entire winter return variability. |
URI: | http://hdl.handle.net/2451/26821 |
Appears in Collections: | Derivatives Research |
Files in This Item:
File | Description | Size | Format | |
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S-DRP-03-05.pdf | 145.08 kB | Adobe PDF | View/Open |
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