UC Davis Agricultural and Resource Economics

Aaron Smith: AAEA Quality of Communication Award

Aug. 11, 2014

Professor Aaron Smith received the Quality of Communication Award from the Agricultural and Applied Economics Association (AAEA) at the annual meeting held on July 28 in Minneapolis. Along with Michael K. Adjemian (USDA; Ph.D. 2009, UC Davis ARE), and Philip Garcia and Scott Irwin (University of Illinois, Champaign-Urbana), Aaron received the award for a collection of three papers: "Futures Market Failure?" (American Journal of Agricultural Economics), "Non-Convergence in Domestic Commodity Futures Markets: Causes, Consequences and Remedies" (Economic Information Bulletin), and "Solving the Commodity Markets' Non-Convergence Puzzle" (Amber Waves).

As Aaron explained, "These papers address recent events in which futures markets dramatically mispriced agricultural grains and oilseeds. In a well-functioning futures market, the futures price at expiration equals the price of the underlying asset. This condition failed to hold in grain markets for most of 2005-10, when futures contracts expired up to 35% above the cash grain price. We show that this non-convergence phenomenon is an unintended consequence of market design that can be fixed relatively easily. This finding contradicts claims that speculative trading was the underlying cause."


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