Volatility spillover in aquaculture and fisheries markets

Abstract

While there have been a number of studies investigating the market integration between farmed and wild seafood, the relationship in terms of volatility has received little attention. However, with the high degree of market integration for similar species, one would also expect substantial volatility spillover. In this paper, we investigate the price volatility relationship between seafood from aquaculture and fisheries. Using trade data from 1990 to 2016, we assess both size and direction of volatility spillover over time, allowing us to evaluate the relative importance of both production techniques on seafood price volatility. Our results show a time-varying relationship as the level and direction of volatility spillover changes. Still, our results indicate that wild markets typically transmit price uncertainty to aquaculture markets, thus increasing the volatility in aquaculture markets. In addition, our results indicate that it requires a substantial (negative) supply shock to aquaculture production to shift volatility spillover from aquaculture to wild. These results add to previous studies confirming that prices of aquaculture products are less volatile than those of wild products and, in general, reduce volatility in seafood markets.