Asymmetric Price Volatility Interaction between U.S. Food and Energy Markets
31 Pages Posted: 27 Jan 2017 Last revised: 14 Mar 2017
Date Written: January 26, 2017
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: Suggested Citation