How far do shocks move across borders? Examining volatility transmission in major agricultural futures markets

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: This paper examines the level of interdependence and volatility transmission in global agricultural futures markets. We follow a multivariate GARCH approach to explore the dynamics and cross-dynamics of volatility across major exchanges of corn, wheat, and soybeans between the United States, Europe, and Asia. We account for the potential bias that may arise when considering exchanges with different closing times. The results indicate that agricultural markets are highly interrelated and there are both own-and cross-volatility spillovers and dependence among most of the exchanges. The results also show the major role Chicago plays in terms of spillover effects over the other markets, particularly for corn and wheat. Additionally, the level of interdependence between exchanges has only increased in recent years for some of the commodities. Keywords: Volatility transmission, agricultural commodities, futures markets, Multivariate GARCH. JEL Classification: Q02, G15, Q11, C32. Terms of use: Documents inResumen: En este trabajo se analiza el nivel de interdependencia y transmisión de volatilidad en los mercados internacionales de futuros agrícolas. Se sigue un enfoque de GARCH multivariado para explorar la dinámica y la dinámica cruzada de la volatilidad para los principales mercados de maíz, trigo y soya en Estados Unidos, Europa y Asia. Se toma en cuenta el posible sesgo que puede surgir cuando se consideran mercados con diferentes horarios de cierre. Los resultados indican que los mercados agrícolas se encuentran altamente interrelacionados y que existen derrames propios y cruzados de volatilidad y dependencias entre la mayoría de los mercados. Los resultados indican además el importante papel que juega Chicago en términos de efectos de derrame de volatilidad sobre los otros mercados, particularmente para maíz y trigo. Adicionalmente, el nivel de interdependencia entre los mercados sólo se ha incrementado en años recientes para algunos de los productos primarios. Palabras Clave: Transmisión de volatilidad, productos primarios agrícolas, mercados de futuros, GARCH multivariado.

Volatile and Extreme Food Prices, Food Security, and Policy: An Overview

“…They estimate volatility conditional on past shocks and volatility. Multivariate GARCH models also allow volatility (risk) spillovers from other markets or commodities to be considered (see, e.g., Rapsomanikis and Mugera 2011;Hernandez et al 2014). The risk of price changes can also be derived implicitly from financial market data (Prakash 2011).…”

“…As commodity exchanges are linked globally (Hernandez et al 2014), much coordination is necessary to harmonize regulation. Excluding food commodities completely from speculative transactions, however, could be counterproductive as it impedes the price identification process and could even increase volatility (Santos 2002;Jacks 2007).…”

Transmission of Food Price Volatility from International to Domestic Markets: Evidence from Africa, Latin America, and South Asia

“…Zhao and Goodwin (2011) found important volatility spillovers between corn and soybean future prices based on a BEKK model. Using both a BEKK and a DCC model, Hernandez et al (2014) showed significant volatility spillovers within corn, wheat, and soybean futures exchanges in the United States, Europe, and Asia as well as an increase in their interdependence in recent years. Beckmann and Czudaj (2014) also showed evidence supporting short-run volatility transmission between futures prices of corn, wheat, and cotton, based on bivariate GARCH-in-mean VAR models.…”

“…Moreover, similar to Gardebroek and Hernandez (2013) and Hernandez et al (2014), we derived impulse response functions for the estimated conditional volatilities to assess how a shock or innovation is transmitted from the international market to the domestic market and obtain the elasticity of domestic price volatility with respect to international price volatility.…”

Determining fluctuations and cycles of corn price in Iran

“…This has raised concern about unexpected price spikes as a major threat to food security, especially in less developed countries, where food makes up a high proportion of the household expenditures (Hernandez et al 2012). Because of the importance of price volatilities, many researches have been done in this field.…”