Modelling Long Memory Volatility in Agricultural Commodity Futures Returns

34 Pages Posted: 24 Oct 2009

See all articles by Roengchai Tansuchat

Roengchai Tansuchat

Faculty of Economics - Chiang Mai University

Chia-Lin Chang

National Chung Hsing University - Department of Applied Economics, Department of Finance

Michael McAleer

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

Date Written: October 20, 2009

Abstract

This paper estimates the long memory volatility model for 16 agricultural commodity futures returns from different futures markets, namely corn, oats, soybeans, soybean meal, soybean oil, wheat, live cattle, cattle feeder, pork, cocoa, coffee, cotton, orange juice, Kansas City wheat, rubber, and palm oil. The class of fractional GARCH models, namely the FIGARCH model of Baillie et al. (1996), FIEGACH model of Bollerslev and Mikkelsen (1996), and FIAPARCH model of Tse (1998), are modelled and compared with the GARCH model of Bollerslev (1986), EGARCH model of Nelson (1991), and APARCH model of Ding et al. (1993). The estimated d parameters, indicating long-term dependence, suggest that fractional integration is found in most of agricultural commodity futures returns series. In addition, the FIGARCH (1,d,1) and FIEGARCH(1,d,1) models are found to outperform their GARCH(1,1) and EGARCH(1,1) counterparts.

Keywords: Long memory, agricultural commodity futures, fractional integration, asymmetric, conditional volatility

JEL Classification: Q14, Q11, C22, C51

Suggested Citation

Tansuchat, Roengchai and Chang, Chia-Lin and McAleer, Michael, Modelling Long Memory Volatility in Agricultural Commodity Futures Returns (October 20, 2009). Available at SSRN: https://ssrn.com/abstract=1491890 or http://dx.doi.org/10.2139/ssrn.1491890

Roengchai Tansuchat

Faculty of Economics - Chiang Mai University ( email )

Thailand

Chia-Lin Chang (Contact Author)

National Chung Hsing University - Department of Applied Economics, Department of Finance ( email )

Taichung, Taiwan
China

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

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