Volatile agricultural markets, how much is oil to blame?

by Lucio Alberto Saucedo
Doctoral thesis
Date of Examination:2016-05-04
Date of issue:2016-07-07
Advisor:Prof. Dr. Bernhard Brümmer
Referee:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Stephan von Cramon-Taubadel
Persistent Address: http://dx.doi.org/10.53846/goediss-5735

 

 

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Abstract

English

Over the last decade the link between agricultural and oil markets has reinforced after the introduction of biofuels as substitutes for gasoline and diesel. Although the literature on price transmission between these markets is prolific, research on second order moment dynamics is scant. This study contributes to the understanding of this complex relation by providing average and spot measures of the magnitude and direction of volatility spillovers. Our methodology is based on forecast error variance decompositions of VAR and VARMA systems of parametric and non-parametric volatility measures. Results show that the linkage between oil and agricultural markets has strengthened after the food and financial crisis of 2007/2008. Moreover, on a daily basis (co)variations of oil prices explain, on average, one fifth of volatility spillovers in agricultural products used as biofuel feedstocks before the crisis and one quarter afterwards.
Keywords: Realized volatility; MGARCH; Co-volatility; Volatility spillovers; Commodity markets; Biofuels
 
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