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Article
How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets Energy Economics
Energy Economics
  • Mindy L. Mallory, University of Illinois at Urbana-Champaign
  • Scott H. Irwin, Iowa State University
  • Dermot J. Hayes, Iowa State University
Document Type
Article
Publication Version
Submitted Manuscript
Publication Date
11-1-2012
DOI
10.1016/j.eneco.2012.03.011
Abstract
This article uses the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explores statistical evidence for the link. We propose that a long-run no-profit condition is established in distant futures markets for ethanol, corn and natural gas and then use the theory of storage to define an inter-temporal equilibrium among these prices. The relationship shows that under certain conditions, future price expectations will influence nearby futures prices and that a short-term relationship between input and output prices will exist. We demonstrate validity of the theory using a structural price model and then by means of time-series techniques.
Comments

This is a working paper from Energy Economics, 34(6) November 2012; 2157-2166. Doi: 10.1016/j.eneco.2012.03.011.

Citation Information
Mindy L. Mallory, Scott H. Irwin and Dermot J. Hayes. "How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets Energy Economics" Energy Economics Vol. 34 Iss. 6 (2012) p. 2157 - 2166
Available at: http://works.bepress.com/dermot_hayes/136/