Speculative Bubbles in Agricultural Prices

Abstract:     
Recent spikes and crashes in agricultural commodity prices have triggered a new debate on the causes and consequences of skyrocketing and then abruptly falling food prices. We investigate whether speculative bubbles are responsible for price surges in the US corn and wheat market. From a technical point of view, we draw on the convenience yield model, and use commodity dividends to approximate corn's and wheat's fundamental value. Afterwards, we apply the Momentum Threshold Auto-Regressive (MTAR) approach to detect periods of substantial overvaluation followed by a crash. The empirical evidence is favorable for speculative bubbles in the corn and wheat prices over the last decade and before.

Number of Pages in PDF File: 35

Keywords: Agricultural Prices, Speculative Bubbles, Convenience Yield Model, Momentum Threshold Auto-Regressive Approach

JEL Classification: G10, G12, G18, Q02, Q14, Q18

working papers series