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Testing for Speculative Behavior in US Corn Ethanol Investments

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  • Kumarappan, Subbu
  • Gustafson, Cole R.

Abstract

Crude oil price speculation during 2000s could have increased installed capacity in corn ethanol plants beyond what was warranted by the market factors. We use Muth’s commodity pricing model and Flood and Garber’s tests to test for speculative investment in US corn ethanol industry. The ethanol price expectations are derived using a system of supply-demand-inventory describing US ethanol markets under rational expectations (perfect foresight). These price expectations can help differentiate the installed capacity into two: capacity supported by the market fundamentals and the probable capacity that is installed based on speculation. Econometric estimation procedures and functional form approximations are discussed.

Suggested Citation

  • Kumarappan, Subbu & Gustafson, Cole R., 2010. "Testing for Speculative Behavior in US Corn Ethanol Investments," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61418, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61418
    DOI: 10.22004/ag.econ.61418
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    File URL: https://ageconsearch.umn.edu/record/61418/files/Testing%20for%20Speculative%20Behavior%20in%20US%20Corn%20Ethanol%20Investments%20AAEA10%20_%2011196.pdf
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    References listed on IDEAS

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    1. Chris Brooks & Apostolos Katsaris, 2003. "Rational Speculative Bubbles: An Empirical Investigation of the London Stock Exchange," Bulletin of Economic Research, Wiley Blackwell, vol. 55(4), pages 319-346, October.
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    Agricultural Finance; Financial Economics;

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