Many studies have addressed over- and underreaction in financial markets including stock markets, option markets, and foreign currency markets. However, there are few literatures on these phenomena in agricultural futures markets. This study examines the price adjustment process following significant events in the three US agricultural futures markets namely corn, soybeans, and wheat. The results show that there is underreaction phenomenon in the corn futures markets but overreaction phenomenon in the wheat futures markets for both losers and winners. However, underreaction phenomenon is found in the soybeans futures markets only for losers. There is also strong evidence that information leakage is found in the three agricultural futures markets. Furthermore, the cross-sectional results confirms that, even after controlling for other potentially confounding factors, wheat futures markets experience relatively stronger tendency toward overreaction probably because that the wheat futures market is less liquid in comparison to corn and soybeans futures markets. Moreover, for losers, the tendency toward overreaction is stronger if the magnitude of initial futures price changes or degrees of pre-event information leakage are higher. In general, the efficient markets hypothesis is rejected in the three futures markets; therefore arbitrage opportunity seems possible for investors.
