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Quarterly Storage Model of U.S. Cotton Market: Estimation of the Basis under Rational Expectations

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  • Tokovenko, Oleksiy
  • Gunter, Lewell F.

Abstract

The paper outlines an approach to estimation and analysis of the futures basis in the U.S. cotton market under weakly rational expectations. Given the model specification derived from the underlying dynamic profit optimization problem of the dealers, the intermediary market model is estimated using the self-organizing state-space (SOSS) approach. Estimation results are used to evaluate the prediction power of the method and test the main assumptions about the existence and consistency of the subjective rational expectations incorporated in the model.

Suggested Citation

  • Tokovenko, Oleksiy & Gunter, Lewell F., 2008. "Quarterly Storage Model of U.S. Cotton Market: Estimation of the Basis under Rational Expectations," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6435, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea08:6435
    DOI: 10.22004/ag.econ.6435
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    References listed on IDEAS

    as
    1. Chow, G.C., 1991. "Dynamic Optimization Without Dynamic Programming," Papers 361, Princeton, Department of Economics - Econometric Research Program.
    2. Hikaru Hanawa Peterson & William G. Tomek, 2005. "How much of commodity price behavior can a rational expectations storage model explain?," Agricultural Economics, International Association of Agricultural Economists, vol. 33(3), pages 289-303, November.
    3. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, October.
    4. Lai, Jing-Yi & Myers, Robert J. & Hanson, Steven D., 2003. "Optimal On-Farm Grain Storage by Risk-Averse Farmers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(3), pages 1-22, December.
    5. Chow, Gregory C., 1992. "Dynamic optimization without dynamic programming," Economic Modelling, Elsevier, vol. 9(1), pages 3-9, January.
    6. Miranda, Mario J & Glauber, Joseph W, 1993. "Estimation of Dynamic Nonlinear Rational Expectations Models of Primary Commodity Markets with Private and Government Stockholding," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 463-470, August.
    7. Taylor, Mykel R. & Dhuyvetter, Kevin C. & Kastens, Terry L., 2006. "Forecasting Crop Basis Using Historical Averages Supplemented with Current Market Information," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(3), pages 1-19, December.
    8. Tanizaki, Hisashi & Mariano, Roberto S., 1998. "Nonlinear and non-Gaussian state-space modeling with Monte Carlo simulations," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 263-290.
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    Crop Production/Industries;

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