Impact of WASDE reports on implied volatility in corn and soybean markets

Abstract

Abstract This study investigates the impact of U.S. Department of Agriculture World Agricultural Supply and Demand Estimate (WASDE) reports on implied volatility in corn and soybean markets over 1985 to 2002. If WASDE reports resolve uncertainty, implied volatility should drop immediately after release of the reports. Results show that WASDE reports lead to a statistically significant reduction of implied volatility that averages 0.7 percentage points for corn and 0.8 percentage points for soybeans. The magnitude of the reduction is largest for the group of WASDE reports containing both domestic and international situation and outlook information. This group of reports reduces implied volatility by an average of 1.1 percentage points in corn and by almost 1.5 percentage points in soybeans. Results also reveal that the market impact of WASDE reports is strongest in the most recent 1996 to 2002 subperiod. Overall, the results indicate that WASDE reports provide valuable information to corn and soybean market participants. [JEL classifications: Q100, Q110, Q130]. © 2008 Wiley Periodicals, Inc.

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