How do you straddle hogs and pigs? Ask the Greeks!

McKenzie, Andrew M.; Thomsen, Michael R.; Phelan, Josh

doi:10.1080/09603100500428230

Cited by 13 publications

(11 citation statements)

References 25 publications

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“…As proprietary data play an increasingly central role in agricultural decision making, the public sector niche in the market for agricultural information must be reconsidered. (p. 122) In response to this ongoing debate, a number of empirical studies have investigated the economic benefits of public situation and outlook reports using an event study framework (e.g., Colling & Irwin, 1990;Garcia, Irwin, Leuthold, & Yang, 1997;Grunewald, McNulty, & Biere, 1993;McKenzie, Thomsen, & Phelan, 2007;Sumner & Mueller, 1989). Much of this work has focused on USDA crop-production reports and livestock-inventory reports.…”

Section: Introductionmentioning

confidence: 99%

“…Implied volatility is a forwardlooking measure of volatility that reflects changes in expectations of market participants about future uncertainty. Several studies have shown that the arrival of new information alters the amount of uncertainty that market participants expect to be resolved before option expiration and results in significant changes in optionimplied volatility (e.g., Ederington & Lee, 1996;McKenzie et al, 2007;McNew & Espinosa, 1994;Patell & Wolfson, 1979). Around scheduled news events, resolution of uncertainty is characterized by a rise in implied volatility before the announcement date, a peak on the day before the announcement, and a fall to a new, lower level on the report day (for a hypothetical example, see Figure 1).…”

Section: Introductionmentioning

confidence: 99%

“…The decline in implied volatility after the announcement date is due to the removal of the relatively large announcement date volatility from the average. As McKenzie et al (2007) noted, options premiums in an efficient market will accurately reflect the expected pattern in volatility around the announcement, and it will not be possible to systematically profit from strategies such as long or short straddle.…”

Section: Introductionmentioning

confidence: 99%

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Impact of WASDE reports on implied volatility in corn and soybean markets

et al. 2008

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This study investigates the impact of U.S. Department of Agriculture World Agricultural Supply and Demand Estimate (WASDE) reports on implied volatility in corn and soybean markets over 1985 to 2002. If WASDE reports resolve uncertainty, implied volatility should drop immediately after release of the reports. Results show that WASDE reports lead to a statistically significant reduction of implied volatility that averages 0.7 percentage points for corn and 0.8 percentage points for soybeans. The magnitude of the reduction is largest for the group of WASDE reports containing both domestic and international situation and outlook information. This group of reports reduces implied volatility by an average of 1.1 percentage points in corn and by almost 1.5 percentage points in soybeans. Results also reveal that the market impact of WASDE reports is strongest in the most recent 1996 to 2002 subperiod. Overall, the results indicate that WASDE reports provide valuable information to corn and soybean market participants. [JEL classifications: Q100, Q110, Q130]. © 2008 Wiley Periodicals, Inc.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Impact of WASDE reports on implied volatility in corn and soybean markets

et al. 2008

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“…Extant literature has shown that the revelation of information contained in scheduled reports leads to an increase in realized futures price volatility as market expectations are realigned in the immediate aftermath of report release, but that implied volatilities-which are a forward-looking measure of volatility and reflect the expected volatility over the remaining life of an options contract-will fall in the aftermath of a "newsworthy" report. This is because reports contain valuable information and because uncertainty is removed from the market as expectations are realigned (Ederington and Lee 1996;McNew an Espinosa 1994;McKenzie, Thomsen, and Phelan 2007).…”

Section: Applied Economic Perspectives and Policymentioning

confidence: 99%

Was the Missing 2013 WASDE Missed?

Adjemian

McKenzie²,

Thomsen³

2017

Applied Eco Perspectives Pol

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Government crop data have been shown to contribute to the efficient operation of agricultural commodity markets. In 2013, the USDA curtailed its crop report publication for the first time in decades due to an appropriations lapse, thereby offering the chance to study the impact on markets of missing government data. As expected, derivatives markets for corn and soybeans did not display characteristic short-run patterns in terms of uncertainty resolution and price changes that are normally observed around scheduled USDA release times. We are unable to detect evidence of a prolonged period of heightened uncertainty, realized volatility around the missing report, or abnormal pricing errors in the absence of government data. However, an unsurprisingly large 2013 corn and soybean crop could confound that attempt.

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“…Most of the extant literature investigates what happens to price levels on USDA event days (Adjemian 2012;Ying, Chen and Dorfman 2019) or documents how fast the USDA news is impounded into prices (Adjemian and Irwin 2018;Lehecka, Wang and Garcia 2014). As McNew and Espinosa (1994), A. McKenzie, Thomsen and Phelan (2007), and Isengildina-Massa et al (2008) note, however, one cannot capture the full impact of the USDA reports without also analyzing how they affect market uncertainty and sentiment.…”

Section: Introductionmentioning

confidence: 99%

Market Uncertainty and Sentiment Around Usda Announcements

Cao

Robe

2020

SSRN Journal

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We examine empirically the impact of scheduled USDA information releases on uncertainty and sentiment in grains and oilseeds markets. We document that, for up to five trading days after the release of a scheduled USDA report (WASDE, stocks, prospective plantings, and acreage), agricultural option-implied (forwardlooking) volatilities are significantly lower than they were a week before the release. These reports' uncertainty-resolution power is similar in magnitude in the corn, soybeans, and wheat markets. In the case of WASDE, the implied volatility drops more when there had been greater disagreement among market experts in the run-up to a report. For corn and beans (but not wheat), the implied volatility drop following a WASDE or a grain stock report is smaller when the USDA information surprises the market. Except for wheat, we find little evidence that the tightness of grain inventories prior to a USDA report affects the market's reaction. Finally, we show that contemporaneous changes in broad financial-market sentiment and macroeconomic uncertainty (jointly captured by the VIX event-day return) affects the extent to which agricultural markets respond to the USDA report.

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How do you straddle hogs and pigs? Ask the Greeks!

Abstract: Evidence of distortions is found in commodity options premiums around informational events. Option Greeks are used to uncover the nature of these distortions in terms of underlying factors. Both changes in underlying futures prices and implied volatility are mispriced.

Cited by 13 publications

References 25 publications

Impact of WASDE reports on implied volatility in corn and soybean markets

Impact of WASDE reports on implied volatility in corn and soybean markets

Was the Missing 2013 WASDE Missed?

Market Uncertainty and Sentiment Around Usda Announcements

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