What explains price volatility changes in commodity markets? Answers from the world palm‐oil market^⋆

Abstract

What are the sources of commodity price volatility changes? Based on observation of the palm‐oil market (1818–1999). our hypothesis is that the superimposition of short‐distance operators located near the export supply, whose expectation horizon is limited to a few weeks, and long‐distance operators further from the export supply, whose expectation horizon exceeds six months to one year, is responsible for volatility changes and market instability. Because of the superimposition of expectations horizons, volatility grows along with the development of short‐distance trade. We support this hypothesis using a trader‐behavior model derived from Day and Huang [J. Econ. Behavior Org. 14 (1990) 299] and Day [Complex Economic Dynamics, Vol. I. MIT Press, Cambridge, MA]. Our simulation results challenge the argument that trade liberalization and market enlargement necessarily reduce commodity prices volatility.

Agricultural Price Instability: A Survey of Competing Explanations and Remedies

“…They show that the movement in agricultural prices is amplified by market liberalisation, and welfare results go in opposite ways compared to traditional expectations. Voituriez (2001) reaches a similar conclusion with his palm‐oil chaotic market model. He shows that the increase in market size increases the instability of this market.…”

“…Voituriez (2001) studies the evolution of the palm‐oil market from the early nineteenth century. Without carrying out a formal estimation, he shows that a non‐linear dynamics model, using agents with different expectations horizons, can be used for a qualitative representation of the successive periods of volatility experienced by this market when demand shifted from Europe to Asia, and supply shifted from Africa to Indonesia and Malaysia.…”

Uma análise empírica da volatilidade do retorno de commodities agrícolas utilizando modelos ARCH: os casos do café e da soja

“…Esta proposição de política é também sugerida pelo Banco Mundial (1999), segundo o qual a facilitação do acesso, pelos países menos desenvolvidos, aos mercados futuros existentes e o delineamento, quando possível, de bolsas e instrumentos de mercado apropriados para o hedging do risco das commodities seriam as melhores respostas diante da instabilidade verificada dos preços das principais commodities. Voituriez (2001) afirma que mercados incompletos, mercados para os quais não é possível efetuar hedging para todos os riscos, implicam em ineficiência. Assim, a obtenção de mercados completos deveria ser o próximo passo lógico na agenda do comércio global caso objetive-se a eficiência e para que todos os benefícios do livre comércio sejam realizados.…”

“…Entretanto, o mesmo não verificou-se para o farelo e óleo de soja, em que se faz necessário o cross-hedge, posto que não existem contratos futuros disponíveis para estes produtos. Os resultados obtidos por Aguiar et al (2003) são consistentes com a proposição de Voituriez (2001), que postula a necessidade de medidas que levem à criação de mercados completos.…”

Analysing Price Movements of Crude Oil Futures by Mining of Dynamic Sample Size through Price Distribution of the Historical Data

“…In particular, price fluctuation is normally measured by a dispersion variable such as variance or standard deviation in the presence of non-normal price distribution [10].…”