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Does Price Asymmetry Exist In Commodity and Energy Markets?

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  • Wixson, Sarah E.
  • Katchova, Ani L.

Abstract

Recent increases in the price of crude oil have led to a rise in the prominence of corn-based ethanol as an alternative source of energy. As a result linkages have been established between commodity and energy prices. The aim of this study is to determine if soybeans, corn, wheat, oil, and ethanol adjust their prices asymmetrically depending on whether their actual price is over- or under-predicted with respect to one another. This study’s goal of determining if asymmetric price relationships exist is accomplished by using monthly time series price data incorporated into a distributed lag error correction model distinguishing between positive and negative price difference and positive and negative values of the error correction term. The primary results of this study found that asymmetric price changes do occur in the commodity and energy markets. Interestingly, in all the asymmetric price adjustments that were found, with only one exception in the soybean-corn relationship, prices will adjust downward when the actual price of one variable is above its equilibrium price as determined by the price of another study variable and consequently would be expected to exhibit a downward adjustment in price in the following month.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103735.

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Date of creation: 2011
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Handle: RePEc:ags:aaea11:103735

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Related research

Keywords: asymmetric price adjustment; grain prices; crude oil prices; ethanol prices; error correction model; Agribusiness; Agricultural Finance; Demand and Price Analysis; Marketing; Resource /Energy Economics and Policy; Q11; Q13; Q42;

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