Volatility in Wheat Spot and Futures Markets, 1950–1993: Government Farm Programs, Seasonality, and Causality

Abstract

We explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950–1993 period. We find that changing volatility in both markets is highly associated with changing farm programs. The mandatory allotment programs of the 1950s and early 1960s (1/3/50–4/10/64) were associated with low volatility, while the voluntary programs initiated in the mid 1960s seem to have induced high volatility (4/11/64–12/22/85). Both market‐driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s (12/23/85–12/30/93). We also examine seasonality and causality in conjunction with the farm programs.

Asset Storability and Price Discovery of Commodity Futures Markets: A New Look

“…The fact that government farm programs can distort agricultural cash and futures price relationships (Crain & Lee, 1996;Shonkwiler & Maddala, 1985) has not yet received attention in the cointegrationbased literature. Although U.S. farm policies did not directly regulate the market price, it affected agricultural market prices via several price-support tools, including deficiency payments and market loan rates.…”

The dynamics of the Monday effect in international stock indices

“…They range from stocks (Chang et al, 1993;Tong, 2000;Basher & Sadorsky, 2006); to bonds (Gibbons & Hess, 1981;Johnston et al, 1991;Jordan & Jordan, 1991); to exchange rates (McFarland et al, 1982;Hsieh, 1988); to commodities (Chiang & Tapley, 1983;Gay & Kim, 1987;Crain & Lee, 1996); to precious metals (Ball et al, 1982;Ma, 1986), in spot and futures markets in countries from around the world. There are sixteen studies which investigate the international evidence relating to stock indices.…”

Volatility Transmission in the Real Estate Spot and Forward Markets

“…They include Hamao et al (1990), Engle and Susmel (1993), Lin et al (1994), Koutmos and Booth (1995), Karolyi (1995), Kim and Rui (1999), Wang et al (2002), and Cifarelli and Paladino (2005). There were also studies on volatility spillovers between spot and futures markets, such as stock indices (Chin et al 1991;Booth and So 2003), interest rates (Crain and Lee 1995), refined petroleum (Ng and Pirrong 1996), wheat (Crain and Lee 1996), and foreign exchange (Wang and Wang 2001). Volatility clustering and spillovers (either forward-to-spot or feedback relationships) were commonly found in these markets.…”

“…Forward-to-spot spillovers were found for interest rates(Crain and Lee 1995), oil(Ng and Pirrong 1996), and wheat(Crain and Lee 1996), whereas feedback spillovers were found for stock indices(Chin et al 1991;Booth and So 2003) and foreign exchange(Wang and Wang 2001).…”