Search results

1 – 10 of 245
Article
Publication date: 1 May 2019

Wenwen Xi, Dermot Hayes and Sergio Horacio Lence

The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical…

Abstract

Purpose

The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical realized variance and the corresponding risk-neutral expected variance.

Design/methodology/approach

The authors compute variance risk premiums using historical derivatives data. The authors use regression analysis and time series econometrics methods, including EGARCH and the Kalman filter, to analyze variance risk premiums.

Findings

There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the risk-neutral expected variance. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log risk-neutral expected variance. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns in the underlying commodity.

Practical implications

Commodity variance (i.e. volatility) risk cannot be hedged using futures markets. The results have practical implications for US crop insurance programs because the implied volatilities from the relevant options markets are used to estimate the price volatility factors used to generate premia for revenue insurance products such as “Revenue Protection” and “Revenue Protection with Harvest Price Exclusion.” The variance risk premia found implies that revenue insurance premia are overpriced.

Originality/value

The empirical results suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15 percent. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia.

Details

Agricultural Finance Review, vol. 79 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 22 September 2020

Qianqian Mao, Yanjun Ren and Jens-Peter Loy

The purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China…

Abstract

Purpose

The purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China agricultural commodity markets.

Design/methodology/approach

Using recently developed rolling window right-side augmented Dickey–Fuller test, we first detect the dates of price bubbles in China's two important agricultural commodity markets, namely corn and soybeans. Then, we use a penalized maximum likelihood estimation of a multinomial logistic model to estimate the contributing factors of price bubbles in both markets, respectively.

Findings

Results from the bubble detection indicate that price bubbles account for 5.48% (3.91%) of the studied periods for corn (soybeans). More importantly, we find that market liquidity and speculation have opposite effects on the occurrences of bubbles in the corn and soybeans market. World stocks-to-use and exchange rates affect the occurrences of bubbles in a different way for each commodity, as well. Price bubbles are more likely associated with strong economic activity, high interest rates and low inflation levels.

Originality/value

This is the first study considering commodity-specific features into the formation of price bubbles. Through accurately identifying the bubble dates and fixing the estimation bias of rare events models, this study enables us to obtain robust results for each commodity. The results imply that China's corn and soybeans market respond differently to the speculative activity and external shocks from international markets. Therefore, future policy regulations on commodity markets should focus on more commodity-specific factors when aiming at avoiding bubble occurrences.

Details

China Agricultural Economic Review, vol. 13 no. 1
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 19 September 2022

Ran Lu and Hongjun Zeng

The purpose of this paper is to examine the volatility spillover and lead-lag relationship between the Chicago Board Options Exchange volatility index (VIX) and the major…

Abstract

Purpose

The purpose of this paper is to examine the volatility spillover and lead-lag relationship between the Chicago Board Options Exchange volatility index (VIX) and the major agricultural future markets before and during the Coronavirus disease 2019 (COVID-19) outbreak.

Design/methodology/approach

The methods used were the vector autoregression-Baba, Engle, Kraft and Kroner-generalized autoregressive conditional heteroskedasticity method, the Wald test and wavelet transform method.

Findings

The findings indicate that prior to the COVID-19 outbreak, there was a two-way volatility spillover impact between the majority of the sample markets. In comparison, volatility transmission between the VIX index and the agricultural future market was significantly lower following the COVID-19 outbreak, the authors observed greater coherence at higher frequencies than at lower frequencies, implying that the interdependence between the two VIX indices and the agricultural future market was stronger over a longer time-frequency domain and the VIX’s signalling effect on various agricultural future prices after the COVID-19 outbreak was significantly lower.

Originality/value

The authors conducted the first comprehensive investigation of the VIX’s correlation with major agricultural futures, especially during COVID-19. The findings contribute to a better understanding of the risk transmission mechanism between the VIX and major agricultural commodities futures contracts. And our findings have significant implications for investors and portfolio managers, as well as for policymakers who are concerned about the price of agricultural futures.

Details

Studies in Economics and Finance, vol. 40 no. 2
Type: Research Article
ISSN: 1086-7376

Keywords

Book part
Publication date: 16 August 2014

Hung-Gay Fung, Yiuman Tse, Jot Yau and Lin Zhao

This study explores the price linkage between the Chinese commodity futures market and other dominant futures markets, and examines the forces behind the price linkages. The…

Abstract

This study explores the price linkage between the Chinese commodity futures market and other dominant futures markets, and examines the forces behind the price linkages. The contribution by the trading hour innovations in the United States (or United Kingdom) market to the overnight price changes in the Chinese market is larger in scale than the contribution by the daytime information from the Chinese market to the overnight returns of the corresponding US (or UK) market. Several futures have significant interactions of the domestic and foreign factors in the price linkages while the Chinese domestic factors explain better the global market price linkage in some futures (aluminum, gold, and corn), demonstrating the leading role of the Chinese futures markets in these world markets.

Details

International Financial Markets
Type: Book
ISBN: 978-1-78190-312-4

Keywords

Article
Publication date: 23 October 2023

Dimitrios Panagiotou and Konstantinos Karamanis

The aim of this study is to investigate for monotonicity, linearity and symmetry for the price volatility–trading volume relationship in the futures markets of agricultural…

Abstract

Purpose

The aim of this study is to investigate for monotonicity, linearity and symmetry for the price volatility–trading volume relationship in the futures markets of agricultural commodities.

Design/methodology/approach

Empirical findings are produced with the use of a highly flexible, nonparametric approach. Data are daily prices and volumes from the commodities of corn, hard red wheat, oats, rice and soybeans.

Findings

Results reveal violations of monotonicity locally but not globally. Volume and price volatility have, in all markets, a nonlinear relationship to each other, indicating that the strength of the relationship does not remain constant over the entire joint distribution. Global symmetry is rejected for the markets of oats and hard red wheat but cannot be rejected for the remaining three markets. The latter suggests that large values of good volatility are likely to occur together with high trading volumes, as do large values of bad volatility in these markets.

Originality/value

To the best of the authors’ knowledge, this is the first empirical work to test simultaneously for monotonicity, linearity and symmetry between price volatility and trading volume in the futures markets of agricultural commodities.

Details

Studies in Economics and Finance, vol. 40 no. 5
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 31 July 2009

James Eaves and Magali Valero

The purpose of this paper is twofold. The first is to estimate the correlation between market activity and volatility on an exchange that does not use continuous auctions to find…

Abstract

Purpose

The purpose of this paper is twofold. The first is to estimate the correlation between market activity and volatility on an exchange that does not use continuous auctions to find prices. The second is to estimate the sensitivity of that relationship to differences in opinions across traders regarding asset value.

Design/methodology/approach

Both objectives are accomplished by using seven years of trader‐level data from the Tokyo Grain Exchange, which uses rapid sequences of Walrasian tâtonnement auctions to discover prices. On the TGE, only one futures contract trades at any given time and all of a commodity's futures contracts are auctioned in a rapid sequence, with only seconds between a sequence's auctions. The results are interpreted under the hypothesis that this design causes traders' beliefs to become more accurate and more uniform as a sequence progresses.

Findings

Intraday volume is u‐shaped while intraday volatility is downward sloping. The volume–volatility link is positive and stays constant or strengthens as traders' beliefs about value become more precise. The link is driven by trades originating from small futures commission merchants, especially those trades entered on behalf of customers.

Research limitations/implications

Evidence that accounting for cross‐correlations when estimating volatility can have an important effect on estimates is presented. Researchers are encouraged to further explore the implications of cross‐correlations.

Practical implications

The paper includes implications for existing theory, the measurement of volatility, and the design of central exchanges.

Originality/value

This paper uses the TGE as a natural laboratory to test theory. It is the first such study to use data from an exchange that does not use continuous auctions, and the first to document the simultaneous existence of u‐shape volume and downward‐sloping volatility.

Details

Agricultural Finance Review, vol. 69 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 25 February 2022

Dimitrios Panagiotou and Alkistis Tseriki

The cross-quantilogram analysis is employed. The latter can assess the temporal association between two stationary time series at different parts of their joint distribution. Data…

Abstract

Purpose

The cross-quantilogram analysis is employed. The latter can assess the temporal association between two stationary time series at different parts of their joint distribution. Data are daily prices and trading volumes from the futures markets of five agricultural commodities, namely, corn, hard red wheat, oats, rice and soybeans.

Design/methodology/approach

The objective to the present work is to investigate for directional predictability between returns and volume (and vice versa) in the futures markets of agricultural commodities.

Findings

The empirical results reveal evidence, weak as well as strong, that extreme low values of returns are likely to lead high levels of volume. There is also weak evidence that extreme low values of volume are likely to precede high values of returns, except for the futures markets of oats where there is very strong evidence that low values of volume are likely to lead high values of returns. For the commodity of soybeans, there is very strong evidence that extreme high levels of volume are likely to lead high values of returns, but they are very short lived.

Research limitations/implications

Agricultural futures have been recently characterized by increased volatility leading hedgers to be looking for diversification. The present findings suggest that when price crashes occur, investors who suffer losses wish to sell, increasing this way the trading activity. Concurrently, the results reveal that extreme low levels of trading volume might signal a possible price turn around for traders.

Originality/value

This is the first study that employs the quantilogram approach in order to investigate for potential predictability from returns to volume and from volume to returns, in the futures markets of agricultural commodities.

Details

The Journal of Risk Finance, vol. 23 no. 3
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 30 July 2018

Steffen Volkenand, Guenther Filler and Martin Odening

The purpose of this paper is to investigate and compare the impact of order imbalance on returns, liquidity and price volatility in agricultural futures markets on an intraday…

Abstract

Purpose

The purpose of this paper is to investigate and compare the impact of order imbalance on returns, liquidity and price volatility in agricultural futures markets on an intraday basis. The authors examine whether order imbalance is more powerful to explain variations in asset prices compared to other indicators of trading activity, particularly trading volume.

Design/methodology/approach

Using Chicago Mercantile Exchange best bid best offer data, the impact of order imbalance is analyzed via regression analyses. The analyses are carried out for corn, wheat, soy, live cattle and lean hogs in March 2008 and March 2016.

Findings

Results confirm the positive relation between order imbalance and returns as well as between order imbalance and price volatility as suggested by market microstructure models. Order imbalance, however, does not generally outperform trading volume as an explanatory variable.

Practical implications

For some contracts, returns can be predicted using lagged order imbalance. This offers the opportunity to derive profitable trading strategies.

Originality/value

This paper is one of the first attempts to explore the relationship between order imbalance and returns, liquidity and volatility for agricultural commodity futures on an intraday basis, accounting for the increased trading volume and for the high speed at which new information enters the market in an electronic trading environment.

Details

Agricultural Finance Review, vol. 78 no. 5
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 15 May 2023

Luiz Eduardo Gaio and Daniel Henrique Dario Capitani

This study investigates the impacts of the Russia–Ukraine conflict on the cross-correlation between agricultural commodity prices and crude oil prices.

145

Abstract

Purpose

This study investigates the impacts of the Russia–Ukraine conflict on the cross-correlation between agricultural commodity prices and crude oil prices.

Design/methodology/approach

The authors used MultiFractal Detrended Fluctuation Cross-Correlation Analysis (MF-X-DFA) to explore the correlation behavior before and during conflict. The authors analyzed the price connections between future prices for crude oil and agricultural commodities. Data consists of daily futures price returns for agricultural commodities (Corn, Soybean and Wheat) and Crude Oil (Brent) traded on the Chicago Mercantile Exchange from Aug 3, 2020, to July 29, 2022.

Findings

The results suggest that cross-correlation behavior changed after the conflict. The multifractal behavior was observed in the cross correlations. The Russia–Ukraine conflict caused an increase in the series' fractal strength. The study findings showed that the correlations involving the wheat market were higher and anti-persistent behavior was observed.

Research limitations/implications

The study was limited by the number of observations after the Russia–Ukraine conflict.

Originality/value

This study contributes to the literature that investigates the impact of the Russia–Ukraine conflict on the financial market. As this is a recent event, as far as we know, we did not find another study that investigated cross-correlation in agricultural commodities using multifractal analysis.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-0839

Keywords

Article
Publication date: 14 October 2019

Yan Sun and Ken Seng Tan

The purpose of this paper is to propose a new margin protection (MP) scheme for the producers of hog, cattle and dairy in the developing countries.

Abstract

Purpose

The purpose of this paper is to propose a new margin protection (MP) scheme for the producers of hog, cattle and dairy in the developing countries.

Design/methodology/approach

The proposed MP scheme is inspired by the Livestock Gross Margin (LGM) program that has been successfully implemented in US directly implementing the LGM program in developing countries can be difficult due to the rudimentary of the futures market with limited futures listing. To address this issue, the authors proxy the futures prices by relating to some relevant spot prices via an econometric model. The proxied futures prices, in turn, enable the implementation of a generalized LGM, which the authors denote as the MP scheme.

Findings

As China is the world’s largest consumption and production of pork, the authors describe the proposed MP scheme by demonstrating how a generalized LGM can be constructed for the Chinese hog producers. By empirically comparing to the pilot hog price index insurance for the Beijing’s hog producers, the authors find that the proposed MP scheme is more effective in providing MP for the producers.

Research limitations/implications

The proposed MP scheme still requires the availability of some relevant spot prices in order to use an econometric model to proxy the missing futures prices.

Originality/value

The value of this research stems from demonstrating how an MP scheme can be constructed for developing countries that have rudimentary futures markets.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 9 no. 5
Type: Research Article
ISSN: 2044-0839

Keywords

1 – 10 of 245