Long Agricultural Futures Prices: Arch, Long Memory, or Chaos Processes

University of Illinois OFOR Working Paper No. 98-03

56 Pages Posted: 21 Sep 1998

See all articles by Anning Wei

Anning Wei

Rabobank International, Hong Kong

Raymond M. Leuthold

University of Illinois @ Urbana-Champaign

Date Written: May 1998

Abstract

Price series that are 21.5 years long for six agricultural futures markets, corn, soybeans, wheat, hogs, coffee and sugar, possess characteristics consistent with nonlinear dynamics. Three nonlinear models, ARCH, long memory and chaos, are able to produce these symptoms. Using daily, weekly and monthly data for the six markets, each of these models is tested against the martingale difference null, one-by-one. Standard ARCH tests suggest that all series might contain ARCH effects, but further diagnostics show that the series are not ARCH processes, failing to reject the null. A long-memory technique, the AFIMA model, fails to find long-memory structures in the data, except for sugar. This allows chaos analysis to be applied directly to the raw data. Carefully specifying phase space, and utilizing correlation dimension and Lyapunov exponent together, the remaining five price series are found to be chaotic processes.

JEL Classification: Q11, G13, C45

Suggested Citation

Wei, Anning and Leuthold, Raymond M., Long Agricultural Futures Prices: Arch, Long Memory, or Chaos Processes (May 1998). University of Illinois OFOR Working Paper No. 98-03. Available at SSRN: https://ssrn.com/abstract=126951 or http://dx.doi.org/10.2139/ssrn.126951

Anning Wei

Rabobank International, Hong Kong ( email )

Hong Kong

Raymond M. Leuthold (Contact Author)

University of Illinois @ Urbana-Champaign ( email )

1301 W. Gregory Drive
326 Mumford Hall
Urbana, IL 61801
United States
217-333-1810 (Phone)
217-333-5538 (Fax)

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