Do Asset Prices Reflect Fundamentals? Freshly Squeezed Evidence from the Oj Market

25 Pages Posted: 7 Nov 2008

See all articles by Jacob Boudoukh

Jacob Boudoukh

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

Matthew P. Richardson

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

YuQing Shen

affiliation not provided to SSRN

Robert Whitelaw

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

Multiple version iconThere are 5 versions of this paper

Date Written: April 2005

Abstract

The behavioral finance literature cites the frozen concentrated orange juice (FCOJ) futures market as a prominent example of the failure of prices to reflect fundamentals. In contrast, we show that when theory clearly identifies the fundamental, e.g.,temperatures close to or below freezing, there is a close link between FCOJ prices and that fundamental. Using a simple, theoreticallymotivated, nonlinear, state dependent model, we can explain approximately 50% of the return variation on days with freezing temperatures. Moreover, while these observations represent less than 4.5% of the winter sample, they account for two-thirds of the entire winter return variability.

Suggested Citation

Boudoukh, Jacob and Richardson, Matthew P. and Shen, YuQing and Whitelaw, Robert F., Do Asset Prices Reflect Fundamentals? Freshly Squeezed Evidence from the Oj Market (April 2005). NYU Working Paper No. S-DRP-03-05. Available at SSRN: https://ssrn.com/abstract=1296374

Jacob Boudoukh (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Matthew P. Richardson

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

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United States

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

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