How Market Efficiency and the Theory of Storage Link Corn and Ethanol MarketsCARD Working Papers
Series Number10-WP 517
AbstractIn this article we use the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explore 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 current spot prices and that a short-term relationship between input and output prices will exist. This short-term relationship will contain fixed costs. We demonstrate validity of the theory using a structural price model and then by means of time-series techniques.
This working paper was published as Mallory, Mindy L., Scott H. Irwin and Dermot J. Hayes, "How market efficiency and the theory of storage link corn and ethanol markets," Energy Economics 34 (2012): 2157–2166, doi:10.1016/j.eneco.2012.03.011.
Citation InformationMindy L. Mallory, Dermot J. Hayes and Scott Alan Irwin. "How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets" (2010)
Available at: http://works.bepress.com/dermot_hayes/73/