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Price connectedness in U.S. ethanol terminal markets

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  • Gerveni, Maria
  • Serra, Teresa
  • Irwin, Scott H.
  • Hubbs, Todd

Abstract

This article shows, for the first time, the degree of price volatility connectedness across the major regional ethanol markets in the U.S. Connectedness measures are based on forecast error variance decompositions that inform which prices drive system dynamics. We pay special attention to volatility spillovers to and from Chicago, as it is equipped with one of the largest terminals in the U.S. and is widely regarded as the center of ethanol price discovery in the country. Ethanol prices in the Chicago terminal electronic trading platform are also suspected of being manipulated over the 2017‐2019 period. We use Diebold and Yilmaz (2012 and 2014) and a rolling window approach to study the dynamics of price volatility connectedness over time. Using daily data from 2013 to the beginning of 2021, we find that Chicago is the market that generates the most innovations to other market prices. In contrast, Chicago receives the least amount of innovations from all other markets, placing Chicago at the center of price dynamics. We find that price connectedness measures are correlated with market fundamentals, policy, and concentration in the Chicago terminal electronic trading platform, with the latter being associated to an increase in the relevance of Chicago as a central market.

Suggested Citation

  • Gerveni, Maria & Serra, Teresa & Irwin, Scott H. & Hubbs, Todd, 2023. "Price connectedness in U.S. ethanol terminal markets," Energy Economics, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:eneeco:v:124:y:2023:i:c:s0140988323002578
    DOI: 10.1016/j.eneco.2023.106759
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    Cited by:

    1. Capitani, Daniel Henrique Dario & Gaio, Luiz Eduardo, 2025. "Volatility Spillover in Regional Ethanol and Grain Markets: Evidence from The Expansion of Corn-Based Ethanol Production in Brazil," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 13(3), July.
    2. Capitani, Daniel H D & Gaio, Luiz Eduardo & Mattos, Fabio L. & Franco Da Silveira, Rodrigo Lanna & Cruz, Jose Cesar, 2024. "Corn ethanol expansion in Brazil: Are volatility interconnectedness changing?," 2024 Annual Meeting, July 28-30, New Orleans, LA 343612, Agricultural and Applied Economics Association.
    3. repec:ags:aaea22:343612 is not listed on IDEAS
    4. Gerveni, Maria & Irwin, Scott H. & Serra, Teresa, 2025. "Price Connectedness in U.S. Biodiesel and Petroleum Diesel Markets," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360642, Agricultural and Applied Economics Association.

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