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Asymmetric Price Volatility Interaction between U.S. Food and Energy Markets

31 Pages Posted: 27 Jan 2017 Last revised: 14 Mar 2017

Sayed Saghaian

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Mehdi Nemati

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Cory Walters

University of Nebraska at Lincoln - College of Agricultural Sciences and Natural Resources - Department of Agricultural Economics

Bo Chen

University of Kentucky - Department of Agricultural Economics, Students

Date Written: January 26, 2017

Abstract

Linkages in agriculture and energy markets have been reinforced with the increase in ethanol agribusinesses. An important concern has been whether corn-ethanol-oil linkages transfer instability and risk from energy markets to already volatile agricultural markets and lead to price volatility spillover effects between food and ethanol markets. The objective of this article is to investigate the potential volatility spillover effects between crude oil and U.S. corn and ethanol prices. In this article, a VARMEA BEKK multivariate Asymmetric GARCH (MVAGARCH) time-series approach with daily, weekly, and monthly commodity futures price frequencies was used to assess the extent of price volatility transmission between the agriculture and energy markets. We found asymmetric volatility spillover effects for the corn and ethanol markets. Overall we found the corn market responds differently to the shocks from the crude oil and ethanol markets depending on the dataset frequency. All dataset frequencies showed evidence of volatility spillover effects from corn to the ethanol market, but only with the daily frequency did we find volatility spillover effect from ethanol to the corn market. Also, we found that ethanol and corn return volatility responds differently to the positive and negative shocks in the crude oil, ethanol, and corn markets. These results are robust to the frequency of the dataset used in this study.

Keywords: Asymmetry, corn prices, crude oil prices, ethanol prices, volatility, VARMA-BEKK-MVGARCH modeling

JEL Classification: E60; Q10; Q19

Suggested Citation

Saghaian, Sayed and Nemati, Mehdi and Walters, Cory and Chen, Bo, Asymmetric Price Volatility Interaction between U.S. Food and Energy Markets (January 26, 2017). Available at SSRN: https://ssrn.com/abstract=2906336

Sayed Saghaian (Contact Author)

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

Mehdi Nemati

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

Cory Walters

University of Nebraska at Lincoln - College of Agricultural Sciences and Natural Resources - Department of Agricultural Economics ( email )

Lincoln, NE 68583
United States

Bo Chen

University of Kentucky - Department of Agricultural Economics, Students ( email )

Lexington, KY
United States

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