[lbo-talk] Markets and the tooth fairy - Orange juice futures

[Jamessuro at aol.com]

Actually, imports from Brazil were a negligible part of the U.S. market 
before the 1980s, and almost all of Florida concentrate was produced for domestic 
use (and almost all domestic concentrate came from Florida), so Brazilian 
weather probably had little or no effect on Florida prices during the period Roll 
studied.

As for the risibility of the claim that the market outperformed the NWS, Roll 
was trying to compare the correlation of the NWS' forecast with the actual 
temperature to the correlation of the change in futures' prices with the actual 
temperature. The first, as far as I can tell, was pretty good. The second was 
slightly better. So from 1975 to 1981, if at 3 pm you wanted to know what the 
Florida weather would be like that night, your best solution would be to take 
the NWS forecast and adjust it up or down based on what the final price of OJ 
futures was. 

Re: an earlier point, the "predictions" Roll was measuring were of weather 
conditions roughly six to eighteen hours after market close. So there was no 
suggestion that markets could make long-term weather predictions. (Of course, 
some true believer may have made that claim, but I've never seen evidence for 
it.)

James Surowiecki
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