Modelling Conditional Correlations in the Volatility of Asian Rubber Spot and Futures Returns
Chiang Mai University - Faculty of Economics
Maejo University - Faculty of Economics
National Chung Hsing University - Department of Applied Economics, Department of Finance
Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics
October 29, 2009
Asia is presently the most important market for the production and consumption of natural rubber. World prices of rubber are not only subject to changes in demand, but also to speculation regarding future markets. Japan and Singapore are the major futures markets for rubber, while Thailand is one of the world’s largest producers of rubber. As rubber prices are influenced by external markets, it is important to analyse the relationship between the relevant markets in Thailand, Japan and Singapore. The analysis is conducted using several alternative multivariate GARCH models. The empirical results indicate that the constant conditional correlations arising from the CCC model of Bollerslev (1990) lie in the low to medium range. The results from the VARMA-GARCH model of Ling and McAleer (2003) and the VARMA-AGARCH model of McAleer et al. (2009) suggest the presence of volatility spillovers and asymmetric effects of positive and negative return shocks on conditional volatility. Finally, the DCC model of Engle (2002) suggests that the conditional correlations can vary dramatically over time. In general, the dynamic conditional correlations in rubber spot and futures returns shocks can be independent or interdependent.
Number of Pages in PDF File: 18
Keywords: multivariate GARCH, volatility spillovers, conditional correlations, Asian rubber prices, spot returns, futures returns
JEL Classification: C22, C32, G17, G32, Q14working papers series
Date posted: November 1, 2009
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