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Long Agricultural Futures Prices: ARCH, Long Memory, or Chaos Processes?

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Author Info
Anning Wei (Rabobank, Hong Kong)
Raymond M. Leuthold (University of Illinois at Urbana-Champaign)
Abstract

Price series that are 21.5 years long for six agricultural futures markets, corn, soybeans, wheat, hogs, coffee and sugar, possess characteristics consistent with nonlinear dynamics. Three nonlinear models, ARCH, long memory and chaos, are able to produce these symptoms. Using daily, weekly and monthly data for the six markets, each of these models is tested against the martingale difference null, one-by-one. Standard ARCH tests suggest that all series might contain ARCH effects, but further diagnostics show that the series are not ARCH processes, failing to reject the null. A long-memory technique, the AFIMA model, fails to find long-memory structures in the data, except for sugar. This allows chaos analysis to be applied directly to the raw data. Carefully specifying phase space, and utilizing correlation dimension and Lyapunov exponent together, the remaining five price series are found to be chaotic processes.

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Paper provided by EconWPA in its series Finance with number 9805001.

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Length: 56 pages
Date of creation: 04 May 1998
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Handle: RePEc:wpa:wuwpfi:9805001

Note: Type of Document - pdf; prepared on PC; to print on HP Laserjet; pages: 56; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois at Urbana-Champaign. Working Paper 98-03. For a complete list of OFOR working papers see
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Related research
Keywords: futures markets; ARCH; chaos;

Find related papers by JEL classification:
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics

This paper has been announced in the following NEP Reports:

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