The dynamics and volatility of prices in multiple markets: a quantile approach

Abstract

This paper presents an econometric investigation of price dynamics and volatility in multiple markets. The econometric approach relies on a quantile autoregressive (QAR) model and a copula to provide a flexible representation of price dynamics and volatility in related markets. The analysis allows for an arbitrary distribution of prices across markets, nonlinear dynamics and the presence of price cycles. We propose a two-step estimation method to support a consistent estimation of the multivariate price distribution and its evolution over time. The analysis is illustrated in an econometric application to price dynamics in the US pork vertical sector. The application provides new and useful information on the nature of the pork cycle, the linkages between farm price and retail price and the evolving price volatility in this market.