ESSAYS ON THE BEHAVIOR OF COMMODITY PRICES AND ECONOMIC EXPERIMENTAL DESIGN
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This dissertation consists of three studies on the behavior of commodity prices and on economic experimental design. The first study investigates the extent to which speculative trading in futures markets contributes to volatility in cash markets. By analyzing coffee, crude oil and wheat we find that futures and cash prices are cointegrated in levels and exhibit bi-directional causality in variance. Thus, factors causing higher futures price volatility will also cause higher cash price volatility. Results suggest increases in speculative activity are associated with decreases in futures price volatility, thus cash price volatility. On balance it appears that policies which limit speculative trade contribute to de-stabilizing cash prices, rather than reducing volatility as intended.The second study investigates the existence of futures market risk premiums. We argue that since the risk premiums are paid to futures market speculators by cash market inventory holders, then if it exists we should find evidence from the behavior of the cash market storers. By analyzing two types of soybean cash market inventory holders, producers and commercial elevators, we do not find evidence that the cash market storers have paid risk premiums. Moreover, we separate our analysis for the period before and after the fourth quarter of 2007, with the commodity markets being characterized by high price levels and volatility in the latter sub-period. We find that both types of cash market storers changed their risk preferences between the two sub-periods. However, the evidence suggest they have not paid risk premiums in either period. The third study investigates the effect of the revelation of posted bids in second-price experimental auctions for apple quality attributes under an experimental design where information is added progressively across rounds. We find that the revelation of posted bids does not bias the following bids and that having increased information on the apple increases the accuracy of participants' following bids. Therefore, the final round bids are used to elicit consumers' willingness to pay for the apple attributes of interest in this study. Consumers are found to prefer large, firm, sweet, crisp apples with fewer defects.