Friday, October 15, 2010

Why such surprise about the corn crop? -

Why such surprise about the corn crop? -

The article begins with a discussion of Eugene Fama and market efficiency--the reaction to new information:

"One also wonders why corn prices jumped more than 20 percent. The new information was not about a crop-destroying tsunami or a sudden attack by UFOs. The raw information about the weather and its impact had been out there for weeks. Since there is such potential profit in pre-guessing the USDA, why didn't traders put more resources into gathering such information themselves? And why doesn't such private production of information result in buying in anticipation of higher prices that would have reduced the eventual jump when authoritative government numbers were released?

Efficient markets adherents would say that this is just an ordinary example of a random error in expectations that, over time, will be offset by other errors in the other direction. But over time the sum of such errors will be zero. Perhaps."

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