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Do USDA Announcements Affect Comovements Across Commodity Futures Returns?

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Author Info

  • Karali, Berna

Abstract

The value of USDA reports has long been a question of interest for researchers and practitioners. However, the impact of announcements on comovements across related commodity prices has not been explored beyond financial asset markets. This is important because the structure of the relationship between commodities could change depending on the type of information revealed in the announcement, thus affecting price perceptions, hedging ratios, and portfolio return variance. This study simultaneously measures the impact of selected USDA reports on the conditional variances and covariances of returns on corn, lean hogs, soybeans, soybean meal, and soybean oil futures contracts using a multivariate GARCH model. It is shown that the largest movements in covariances are observed on the release days of Feed Outlook, Grain Stocks, and Hogs and Pigs reports.

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File URL: http://purl.umn.edu/122315
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Bibliographic Info

Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 37 (2012)
Issue (Month): 1 (April)
Pages:

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Handle: RePEc:ags:jlaare:122315

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Web page: http://waeaonline.org/
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Related research

Keywords: announcement effects; futures markets; market efficiency; multivariate GARCH; USDA reports; Agricultural Finance; Financial Economics; Political Economy;

References

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  1. Charlotte Christiansen & Angelo Ranaldo, 2006. "Realized Bond-Stock Correlation: Macroeconomic Announcement Effects," Working Papers 2006-02, Swiss National Bank.
  2. Karali, Berna & Thurman, Walter N., 2010. "Components of Grain Futures Price Volatility," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), August.
  3. Anderson, Ronald W & Danthine, Jean-Pierre, 1980. " Hedging and Joint Production: Theory and Illustrations," Journal of Finance, American Finance Association, vol. 35(2), pages 487-98, May.
  4. Sanders, Dwight R. & Manfredo, Mark R., 2004. "Comparing Hedging Effectiveness: An Application of the Encompassing Principle," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(01), April.
  5. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
  6. Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2005. "The Value of USDA Situation and Outlook Information in Hog and Cattle Markets," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19050, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  7. Irwin, Scott H. & Good, Darrel L. & Gomez, Jennifer K., 2001. "The Value Of Usda Outlook Information: An Investigation Using Event Study Analysis," 2001 Conference, April 23-24, 2001, St. Louis, Missouri 18948, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  8. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
  9. Baillie, Richard T. & DeGennaro, Ramon P., 1990. "Stock Returns and Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(02), pages 203-214, June.
  10. Baillie, Richard T & Myers, Robert J, 1991. "Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-24, April-Jun.
  11. Andrew M. McKenzie, 2008. "Pre-Harvest Price Expectations for Corn: The Information Content of USDA Reports and New Crop Futures," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 351-366.
  12. Hennessy, David A. & Wahl, Thomas I., 1996. "Effects of Decisionmaking on the Futures Price Volatility, The," Staff General Research Papers 5031, Iowa State University, Department of Economics.
  13. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  14. David A. Hennessy & Thomas I. Wahl, 1996. "The Effects of Decision Making on Futures Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 591-603.
  15. Hyun J. Jin & Darren L. Frechette, 2004. "Fractional Integration in Agricultural Futures Price Volatilities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 432-443.
  16. Isengildina-Massa, Olga & Irwin, Scott H. & Good, Darrel L. & Gomez, Jennifer K., 2008. "The Impact of Situation and Outlook Information in Corn and Soybean Futures Markets: Evidence from WASDE Reports," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(01), April.
  17. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
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