Abstract
The aim of this research is to explore the volatility contagion among different agricultural commodity markets. For this purpose, this research make use of the copula-GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model for the daily spot prices of six major agriculture grain commodities including corn, wheat, soybeans, soya oil, cotton, and oat over the period from 2000 to 2019. Our results provide evidence that significant contagion effects and risk transmissions exist among different agricultural grain commodity markets, suggesting that potential speculation effects on one agricultural market could be contagious for another agricultural market and result an increase in volatility in agricultural product markets. Second, agricultural commodities appears to co-move symmetrically. We also find substantial extreme co-movements among agricultural commodity markets. This indicates that agricultural commodity markets tend to crash (boom) together during extreme events. Moreover, after the food crisis, contagion effects and risk transmissions among different agricultural commodity markets increased substantially. Fourth, we find that the strongest contagion effects and risk transmissions are between corn and soybeans, and the weakest contagion effects and risk transmissions are between soya oil cotton and between cotton and oat. Last, we document that the co-movement varies over time. Our findings hold important implications for modeling the co-movement by the copula-GARCH approach.
Highlights
With recent surges in agricultural commodity prices and price volatilities, academics, policymakers, investors, farmers, and consumers have been paying more attention to agricultural commodity markets
We note that academics such as Abbott et al ([32]) believe that the major drivers of the spikes in agricultural commodity prices in both 2008 and 2011 are the persistent shocks stemming from demand for biofuels, Chinese soybean imports, weather conditions, and stock levels
This study investigates the co-movement of spot prices of four agricultural commodities by using a copula-GARCH approach
Summary
With recent surges in agricultural commodity prices and price volatilities, academics, policymakers, investors, farmers, and consumers have been paying more attention to agricultural commodity markets. Since 2000, the prices of agricultural commodities have experienced long-term and sharp fluctuations. From 2006 onward, the international price of major agricultural commodities has exhibited a substantial tendency to rise. The prices of agricultural commodity surged and experienced sharp fluctuations in 2013 and 2014. The observed fluctuations in agricultural commodity prices could be interpreted by some external factors such as macroeconomic uncertainties, agricultural production, financial crises, huge and persistent demand, biofuels demand, different stock market phases, and climate warming. It can be explained by the interaction and contagion among agricultural commodity markets, as studied in this paper
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