Citations (13)



The Present Value Model of Rational Commodity Pricing

Robert S. Pindyck

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

May 1992

NBER Working Paper No. w4083

The present value model relates an asset's price to the sum of its discounted expected future payoffs. I explore the limits of the 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 futures prices. Hence the model imposes restrictions on the joint dynamics of spot and futures prices, which I test for four commodities. I find close conformance to the model for heating oil, but not for copper or lumber, and especially not for gold. The pattern is the same for the serial dependence of excess returns, These results suggest that for three of the four commodities, prices at least temporarily deviate from fundamentals.

Number of Pages in PDF File: 33

Open PDF in Browser Download This Paper

Date posted: November 22, 2001  

Suggested Citation

Pindyck, Robert S., The Present Value Model of Rational Commodity Pricing (May 1992). NBER Working Paper No. w4083. Available at SSRN: http://ssrn.com/abstract=291745

Contact Information

Robert S. Pindyck (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
100 Main Street
Cambridge, MA 02139
United States
617-253-6641 (Phone)
617-258-6855 (Fax)
HOME PAGE: http://web.mit.edu/rpindyck/www/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN

Paper statistics
Abstract Views: 1,467
Downloads: 80
Download Rank: 231,690
Citations:  13

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.234 seconds