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Smooth volatility shifts and spillovers in U.S. crude oil and corn futures markets

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  • Teterin, Pavel
  • Brooks, Robert
  • Enders, Walter

Abstract

Recent developments in biofuel technologies have resulted in heightened linkages between the petroleum and agricultural sectors. As such, a large price and/or volatility shift experienced in one sector is now more likely to spill-over into the other. In trying to capture the interrelations present in the two markets, we take seriously the importance of properly modeling smooth structural shifts. We incorporate trigonometric functions into a multivariate GARCH model of crude and corn futures prices in order to obtain the empirical volatility response functions and the time-varying correlation coefficient. Although both short-term and long-term futures exhibit shifts in the mean and volatility, volatility shifts do not manifest themselves in the same manner for different maturities. This indicates that the term structure of futures volatility changes over time.

Suggested Citation

  • Teterin, Pavel & Brooks, Robert & Enders, Walter, 2016. "Smooth volatility shifts and spillovers in U.S. crude oil and corn futures markets," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 22-36.
  • Handle: RePEc:eee:empfin:v:38:y:2016:i:pa:p:22-36
    DOI: 10.1016/j.jempfin.2016.05.005
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    References listed on IDEAS

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    Cited by:

    1. repec:col:000107:016034 is not listed on IDEAS
    2. Heckelei, T. & Amrouk, E.M. & Grosche, S., 2018. "International interdependence between cash crop and staple food futures price indices: A wavelet-BEKK-GARCH assessment," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277376, International Association of Agricultural Economists.
    3. repec:eee:reveco:v:59:y:2019:i:c:p:302-317 is not listed on IDEAS
    4. repec:bdr:ensayo:v:35:y:2017:i:84:p:260-266 is not listed on IDEAS
    5. repec:col:000107:016035 is not listed on IDEAS
    6. Saban Nazlioglu & Rangan Gupta & Elie Bouri, 2019. "Movements in International Bond Markets: The Role of Oil Prices," Working Papers 201935, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Corn futures; Crude oil futures; Multivariate GARCH; Volatility breaks; Fourier flexible form; Variance impulse response function;

    JEL classification:

    • 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
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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