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Exploring asymmetries in the effects of El Niño-Southern Oscillation on U.S. food and agricultural stock prices

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  • Atems, Bebonchu
  • Sardar, Naafey

Abstract

State-dependent local projection methods have become the state-of-the-art technique for investigating asymmetric and/or nonlinear responses to economic (and other) shocks. We apply this methodology to examine whether El Niño-Southern Oscillation (ENSO) has asymmetric impacts on U.S. food and agricultural stock prices. Using weekly data from 1990:1 to 2019:4, we find support for the hypothesis that food and agricultural stock prices respond asymmetrically to ENSO shocks. In particular, we provide evidence that El Niño shocks typically decrease or have no effects on U.S. food and agricultural stock prices, whereas La Niña shocks generally increase prices. We argue that this asymmetric response of stock prices to El Niño and La Niña shocks may in part be explained by the differential impact of these shocks on food and agricultural commodity prices. The analysis, thus, emphasizes the need to consider asymmetries in the impacts of ENSO, as failure to do so might result in misleading conclusions about the effect of ENSO on U.S. food and agricultural stock prices.

Suggested Citation

  • Atems, Bebonchu & Sardar, Naafey, 2021. "Exploring asymmetries in the effects of El Niño-Southern Oscillation on U.S. food and agricultural stock prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 1-14.
    • Handle: RePEc:eee:quaeco:v:81:y:2021:i:c:p:1-14
    DOI: 10.1016/j.qref.2021.04.013
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    4. Su, Yuandong & Liang, Chao & Zhang, Li & Zeng, Qing, 2022. "Uncover the response of the U.S grain commodity market on El Niño–Southern Oscillation," International Review of Economics & Finance, Elsevier, vol. 81(C), pages 98-112.
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    6. Matteo Bonato & Oğuzhan Çepni & Rangan Gupta & Christian Pierdzioch, 2023. "El Niño, La Niña, and forecastability of the realized variance of agricultural commodity prices: Evidence from a machine learning approach," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(4), pages 785-801, July.
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    More about this item

    Keywords

    Local projections; El Niño-Southern Oscillation; Agriculture; Stock prices;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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