Modelling Volatility Spillovers for Bio-ethanol, Sugarcane and Corn Spot and Futures Prices

Chia-Lin Chang, Michael McAleer and Yu-Ann Wang

No EI2016-45, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: The recent and rapidly growing interest in biofuel as a green energy source has raised concerns about its impact on the prices, returns and volatility of related agricultural commodities. Analyzing the spillover effects on agricultural commodities and biofuel helps commodity suppliers hedge their portfolios, and manage the risk and co-risk of their biofuel and agricultural commodities. There have been many papers concerned with analyzing crude oil and agricultural commodities separately. The purpose of this paper is to examine the volatility spillovers for spot and futures returns on bio-ethanol and related agricultural commodities, specifically corn and sugarcane. The diagonal BEKK model is used as it is the only multivariate conditional volatility model with well-established regularity conditions and known asymptotic properties. The daily data used are from 31 October 2005 to 14 January 2015. The empirical results show that, in 2 of 6 cases for the spot market, there were significant negative co-volatility spillover effects: specifically, corn on subsequent sugarcane co-volatility with corn, and sugarcane on subsequent corn co-volatility with sugarcane. In the other 4 cases, there are no significant co-volatility spillover effects. There are significant positive co-volatility spillover effects in all 6 cases, namely between corn and sugarcane, corn and ethanol, and sugarcane and ethanol, and vice-versa, for each of the three pairs of commodities. It is clear that the futures prices of bio-ethanol and the two agricultural commodities, corn and sugarcane, have stronger co-volatility spillovers than their spot price counterparts. These empirical results suggest that the bio-ethanol and agricultural commodities should be considered as viable futures products in financial portfolios for risk management

Keywords: Biofuel; spot prices; futures prices; returns; volatility; risk; co-risk; bio-ethanol; corn; sugarcane; diagonal BEKK model; co-volatility spillover effects; hedging; risk management. (search for similar items in EconPapers)
JEL-codes: C32 C58 G13 G15 Q14 Q42 (search for similar items in EconPapers)
Pages: 64
Date: 2016-12-01
New Economics Papers: this item is included in nep-ene and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repub.eur.nl/pub/98657/EI2016-45.pdf (application/pdf)

Related works:
Journal Article: Modelling volatility spillovers for bio-ethanol, sugarcane and corn spot and futures prices (2018)
Working Paper: Modelling Volatility Spillovers for Bio-ethanol, Sugarcane and Corn Spot and Futures Prices (2017)
Working Paper: Modelling Volatility Spillovers for Bio-ethanol, Sugarcane and Corn Spot and Futures Prices (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:98657

Access Statistics for this paper

More papers in Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute Contact information at EDIRC.
Bibliographic data for series maintained by RePub ( this e-mail address is bad, please contact ).