Exploring asymmetries in the effects of El Niño-Southern Oscillation on U.S. food and agricultural stock prices

Abstract

State-dependent local projection methods have become the state-of-the-art technique for investigating asymmetric and/or nonlinear responses to economic (and other) shocks. We apply this methodology to examine whether El Niño-Southern Oscillation (ENSO) has asymmetric impacts on U.S. food and agricultural stock prices. Using weekly data from 1990:1 to 2019:4, we find support for the hypothesis that food and agricultural stock prices respond asymmetrically to ENSO shocks. In particular, we provide evidence that El Niño shocks typically decrease or have no effects on U.S. food and agricultural stock prices, whereas La Niña shocks generally increase prices. We argue that this asymmetric response of stock prices to El Niño and La Niña shocks may in part be explained by the differential impact of these shocks on food and agricultural commodity prices. The analysis, thus, emphasizes the need to consider asymmetries in the impacts of ENSO, as failure to do so might result in misleading conclusions about the effect of ENSO on U.S. food and agricultural stock prices.