Price Volatility of Grains: Relationship with Crude Oil Price Using CCC-Multivariate GARCH Model

Areerat Todsadee,Shoichi Ito,Hiroshi Kameyama

doi:10.3844/ajebasp.2014.138.142

Abstract

Agricultural commodities prices have increased and become significantly more volatile during the past few years periods. The high agricultural commodity prices in recent years have raised the question of whether or not volatility is increasing and leading to more frequent extreme price swings. It is very important to quantify price variability of agricultural products. This paper measures the volatility of food commodity prices using multivariate GARCH. Lagged conditional variance and lagged square distribute have an important on the conditional variance. Moreover, the coefficient of the lagged squared effect was positive and statistically significant for feed crop market. We conclude that strong GARCH effects were apparent for agricultural market.

Highlights

Agricultural commodities prices have increased and become significantly more volatile during the past few years periods
It is very important to quantify price variability of agricultural products. Another reason for the important of measuring price volatility is the fact that negative price shocks have a greater negative impact on the economic growth
The main objective of this study is to study volatility models

Summary

Introduction

Agricultural commodities prices have increased and become significantly more volatile during the past few years periods. The high agricultural commodity prices in recent years have raised the question of whether or not volatility is increasing and leading to more frequent extreme price swings. It is very important to quantify price variability of agricultural products. Another reason for the important of measuring price volatility is the fact that negative price shocks have a greater negative impact on the economic growth. Agricultural price volatility affects the usually risk-averse producers and consumers in developed countries, and undermines food security in poor nations where households spend a substantial portion of their income on food. Rice, corn, wheat and soybean represent the most relevant source of world’s food energy consumption, being key to food security (Wright, 2011)

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