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How far is too far for volatility transmission?

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  • Yang, Yao
  • Karali, Berna

Abstract

This study investigates the existence of volatility transmission between soybean and its products, which are linked through a cross-border supply chain across the U.S. and China. We estimate a multivariate GARCH model with BEKK specification with daily synchronized returns of the CBOT soybean, DCE soybean meal, and DCE soybean oil futures contracts. To better illustrate the cross-volatility spillovers, we consider volatility transmission across three markets in two subperiods and evaluate the impacts of two significant economic events on price volatility. The estimated results indicate the existence of volatility spillovers to each market from the other two markets. We observe the volatility responses in Chinese soybean product markets to an innovation originating from the U.S. soybean have become weaker after 2009. Moreover, we study the volatility reactions to two significant economic events, the 2008 financial crisis and 2018 U.S.-China trade dispute, but the volatility reactions can only be found in the financial crisis.

Suggested Citation

  • Yang, Yao & Karali, Berna, 2022. "How far is too far for volatility transmission?," Journal of Commodity Markets, Elsevier, vol. 26(C).
  • Handle: RePEc:eee:jocoma:v:26:y:2022:i:c:s2405851321000313
    DOI: 10.1016/j.jcomm.2021.100198
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    More about this item

    Keywords

    Cross-border supply chain; Soybean complex; Synchronization; Spillover effects; Volatility impulse response;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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