Do Asset Prices Reflect Fundamentals?

51 Pages Posted: 3 Nov 2008

See all articles by Jacob Boudoukh

Jacob Boudoukh

Interdisciplinary Center (IDC) Herzliyah; AQR Capital Management, LLC

YuQing Shen

affiliation not provided to SSRN

Robert Whitelaw

New York University; National Bureau of Economic Research (NBER)

Date Written: June 2002


This paper reexamines frozen concentrated orange juice (FCOJ) futures returns as they relate to fundamentals, in particular, temperature. We show that when theory clearly identifies the fundamental, i.e., at temperatures close to or below freezing, there is a close link between FCOJ prices and that fundamental. Using a simple theoretical nonlinear model of the relation between FCOJ returns and temperature, we can explain approximately 50% of the return variation. This is important because while only 4.5% of the days in winter coincide with freezing temperatures, two thirds of the entire winter return variability occurs on these days. Moreover, when theory suggests no such relation, i.e., at most temperature levels, we show empirically that none exists. The fact that there is no relation the majority of the time is good news for the theory and market efficiency, not bad news. In terms of other FCOJ return volatility, we also show that other fundamental information about supply, such as USDA production forecasts and news about Brazil production, generate significant return variation that is consistent with theoretical predictions. The evidence in this paper suggests that the literature's conclusion about irrationality drawn from the FCOJ market have more to do with econometricians' lack of modeling ability than with the empirical facts.

Suggested Citation

Boudoukh, Jacob and Shen, YuQing and Whitelaw, Robert F., Do Asset Prices Reflect Fundamentals? (June 2002). NYU Working Paper No. FIN-02-043. Available at SSRN:

Jacob Boudoukh (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

YuQing Shen

affiliation not provided to SSRN

No Address Available

Robert F. Whitelaw

New York University ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0338 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics