http://www.loc.gov/mods/v3 http://www.loc.gov/standards/mods/v3/mods-3-2.xsd
empirical analysis of price expectations formation
evidence from the crude oil reserves acquisitions market
The theory of price expectations formation has advanced substantially since I960, with considerable emphasis on the period since 1973. The theory has progressed from the cobweb model through the adaptive expectations model, and now encompasses rational expectations. Despite the rapid growth in price expectations theory, empirical tests of price expectations have been limited for the most part to futures markets and to survey data. The reasons for such scant empirical attention are twofold. First, except for futures markets and the occasional expectations survey, price expectations are rarely documented. Second, results of empirical tests of rational expectations are fundamentally flawed by the subjective input of the researcher. Subjectivity taints the results of the test, first, in the form of model specification and, second, in the form of the identification of the relevant information set. This dissertation addresses each of these shortcomings. First, crude oil price expectations are recovered in the market for reserves by using a standard engineering model commonly used in reserves evaluation. Second, the crude oil futures market is used to estimate an index of information. This index circumvents the need to subjectively identify the elements of the information set, removing a key source of subjective input. Moreover, because an engineering model is used to recover price expectations, there is no behavioral model with which to test for rational expectations. While the use of the engineering model eliminates model specification as a source of subjectivity, the drawback to this methodology lies in the absence of a definitive rational expectations archetype. This failing is common to all residuals-based tests, however. The results show that agents involved in the crude oil reserves acquisitions market form expectations of futures prices in a way that does not conform with the adaptive expectations model. Further, the results are not inconsistent with rational expectations theory, although a definitive conclusion in this regard is not possible.