Smooth Volatility Shifts and Spillovers in U.S. Crude Oil and Corn Futures Markets

33 Pages Posted: 12 Dec 2016

See all articles by Pavel Teterin

Pavel Teterin

University of Toledo - College of Business and Innovation

Robert Brooks

University of Alabama - Department of Economics, Finance and Legal Studies

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: September 18, 2015

Abstract

Recent developments in biofuel technologies have resulted in heightened linkages between the petroleum and agricultural sectors. As such, a large price and/or volatility shift experienced in one sector is now more likely to spill-over into the other. In trying to capture the interrelations present in the two markets, we take seriously the importance of properly modeling smooth structural shifts. We incorporate trigonometric functions into a multivariate GARCH model of crude and corn futures prices in order to obtain the empirical volatility response functions and the time-varying correlation coefficient. Although both short-term and long-term futures exhibit shifts in the mean and volatility, volatility shifts do not manifest themselves in the same manner for different maturities. This indicates that the term structure of futures volatility changes over time.

Keywords: corn futures, crude oil futures, multivariate GARCH, volatility breaks, Fourier flexible form, variance impulse response function

JEL Classification: C32, G13, Q10, Q40

Suggested Citation

Teterin, Pavel and Brooks, Robert E. and Enders, Walter, Smooth Volatility Shifts and Spillovers in U.S. Crude Oil and Corn Futures Markets (September 18, 2015). Journal of Empirical Finance, Vol. 38, Part A, September 2016, Pages 22-36, ISSN 0927-5398, DOI 10.1016/j.jempfin.2016.05.005., Available at SSRN: https://ssrn.com/abstract=2664603 or http://dx.doi.org/10.2139/ssrn.2664603

Pavel Teterin (Contact Author)

University of Toledo - College of Business and Innovation ( email )

2801 W. Bancroft St.
Mail Stop 103
Toledo, OH 43606
United States

Robert E. Brooks

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-8987 (Phone)
205-348-0590 (Fax)

HOME PAGE: http://www.frmhelp.com

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
200 Alston Hall
Tuscaloosa, AL 35487
United States
205-348-8972 (Phone)
205-348-0590 (Fax)

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