Crop Price Comovements During Extreme Market Downturns

19 Pages Posted: 4 Apr 2016

See all articles by David M. Zimmer

David M. Zimmer

Western Kentucky University - Department of Economics

Date Written: April 2016

Abstract

This study develops and estimates mixture models of crop price comovements using copula functions, which allow for departures from normality during extreme market circumstances. The models also account for unique time‐series patterns inherent in crop price data. The results point to two main conclusions. First, mixture models appear to provide an easy‐to‐estimate approach for capturing real‐life crop price movements. Second, mixture models find that, during extreme market downswings, correlations in price movements strengthen by several orders of magnitude. These results suggest that structured securities assembled from different crops tend to lose diversified protection during extreme market downswings, the exact times when such protection is needed most.

Keywords: Clayton, finite mixture, latent class, structured finance

Suggested Citation

Zimmer, David M., Crop Price Comovements During Extreme Market Downturns (April 2016). Australian Journal of Agricultural and Resource Economics, Vol. 60, Issue 2, pp. 265-283, 2016, Available at SSRN: https://ssrn.com/abstract=2758402 or http://dx.doi.org/10.1111/1467-8489.12119

David M. Zimmer (Contact Author)

Western Kentucky University - Department of Economics ( email )

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1906 College Heights Blve.
Bowling Green, KY 42101
United States

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