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The present value model of rational commodity pricing

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Show simple item record Pindyck, Robert S. en_US 2009-12-15T23:55:39Z 2009-12-15T23:55:39Z 1991 en_US
dc.identifier 91-008 en_US
dc.description.abstract The present value model says that an asset's price equals the sum of current and future discounted expected future payoffs from ownership of the asset. I explore the limits of the present value model by testing its ability to explain the pricing of storable commodities. For commodities the payoff stream is the convenience yield that accrues from holding inventories, and it can be measured directly from spot and future prices. The present value model imposes restrictions on the joint dynamics of spot and future prices, which I test for four commodities. I find a close conformance to the model for heating oil, but not for copper or lumber, and especially not for gold. The pattern is the same when one looks at the serial dependence of excess returns. These results suggest that for three of the four commodities, prices at least temporarily deviate from fundamentals. en_US
dc.description.sponsorship Supported by the National Science Foundation. Supported by M.I.T.'s Center for Energy Policy Research. en_US
dc.format.extent 34 p en_US
dc.publisher MIT Center for Energy and Environmental Policy Research en_US
dc.relation.ispartofseries Working paper (Massachusetts Institute of Technology. Center for Energy Policy Research) ; MIT-CEPR 91-008. en_US
dc.title The present value model of rational commodity pricing en_US
dc.type Working Paper en_US
dc.identifier.oclc 28596165 en_US

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