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Evaluating the Dynamic Nature of Market Risk

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  • Hubbs, Todd
  • Kuethe, Todd H.
  • Baker, Timothy G.

Abstract

This study examines the systematic risk present in major crops for the United States and three corn-belt states. An index of commodities is used in conjunction with cash receipts to generate dynamic estimates of the systematic risk for each crop and state. In our study, we find that beta estimates from a time varying parameter model (FLS) and OLS formulation are substantially different. From our graphs of betas over time, one gains insight into the changing nature of risk and the impact of institutional and macroeconomic events. Systematic risk is shown to increase for most crops over the analyzed period with significant changes in volatility after the collapse of the Bretton Woods Accord.

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Bibliographic Info

Paper provided by NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2009 Conference, April 20-21, 2009, St. Louis, Missouri with number 53037.

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Date of creation: Apr 2009
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Handle: RePEc:ags:nccc09:53037

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Web page: http://www.farmdoc.uiuc.edu/nccc134/
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Related research

Keywords: Systematic risk; flexible least squares; single index model; farm policy; macroeconomics; Agribusiness; Agricultural Finance; Consumer/Household Economics; Demand and Price Analysis; Farm Management; Financial Economics; Institutional and Behavioral Economics; Marketing; Risk and Uncertainty;

References

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  1. Dorfman, Jeffrey H. & Foster, Kenneth A., 1991. "Estimating Productivity Changes With Flexible Coeficients," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(02), December.
  2. James D. Hamilton, 2009. "The Causes and Consequences of Rising Food Prices: Discussion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1257-1258.
  3. Brinker, Adam J. & Parcell, Joseph L. & Dhuyvetter, Kevin C., 2007. "Cross-Hedging Distillers Dried Grains: Exploring Corn and Soybean Meal Futures Contracts," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37567, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  4. Sharpe, William F., 1967. "Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 2(02), pages 76-84, June.
  5. Daniel A. Sumner, 2009. "Recent Commodity Price Movements in Historical Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1250-1256.
  6. Poray, Michael C. & Foster, Kenneth A. & Dorfman, Jeffrey H., 2000. "Measuring An Almost Ideal Demand System With Generalized Flexible Least Squares," 2000 Annual meeting, July 30-August 2, Tampa, FL 21796, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Kuethe, Todd H. & Foster, Kenneth A. & Florax, Raymond J.G.M., 2008. "A Spatial Hedonic Model with Time-Varying Parameters: A New Method Using Flexible Least Squares," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6306, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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