Abstract
We employ the generalized supremum augmented Dickey–Fuller test to examine whether there are multiple bubbles in Chinese agricultural commodities. The proposed approach is suitable for time series data and identifies the origination and termination of multiple bubbles. The results indicate the existence of bubbles for some agricultural commodity prices, such as garlic, ginger, corn, and wheat prices, that deviate from their intrinsic values upon market fundamentals. The bubbles in the garlic and ginger market are related to speculative activities. The other bubbles, in the corn and wheat market, are associated with the rising oil price, international market, and the negative effect of stockpiling policy. The authorities should recognize bubbles and observe their evolutions, leading to Chinese agricultural commodity price stabilization. These findings suggest corresponding measures to be implemented. China should establish a unified market information release platform to avoid speculative activities and formulate a market‐oriented agricultural policy to enhance competitiveness among the international markets.
Highlights
The specification of our supremum augmented Dickey–Fuller (SADF) and GSADF tests allows us to locate bubbles in the Chinese agricultural commodity market. rough these empirical tests, we find there are bubbles in garlic, ginger, corn, and wheat markets, which is related by speculation, oil prices, international markets, and domestic agricultural policies
We investigate the wholesale price for small agricultural commodities and the purchase price index of primary agricultural commodities, which are from the National Bureau of Statistics (NBS)
For the small agricultural commodity market, the bubbles are mainly related to speculative activities, while for the primary agricultural commodity market, bubbles can be explained by the rising oil price, increasing biofuel demand, international agricultural market, and domestic policies
Summary
With regard to agricultural commodities, empirical results are ambiguous for a different country’s agricultural market. Gilbert [2] concentrates on the U.S agricultural commodity price shocks and discovers the existence of speculative bubbles in the soybean market, expecting the same situation for the wheat and corn markets too. Liu et al [4] could not prove that the cyclically and partially explosive speculative bubbles for five commodities do exit, without soybeans. Etienne et al [5] suggest that all 12 agricultural commodity markets include corn, wheat, and coffee and others experiment multiple periods of price explosiveness. For Chinese agricultural commodity markets, Wang and An [9] prove that there is no price bubble in China’s wheat market over a long period of time, but exists in a short period of time. Li and Li [12] hold that there are bubbles in 10 different Chinese agricultural commodities, except for wheat
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