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Modelling risk in agricultural finance: Application to the poultry industry in Taiwan

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  • Huang, Biing-Wen
  • Chen, Meng-Gu
  • Chang, Chia-Lin
  • McAleer, Michael

Abstract

The volatility in agricultural prices, such as for broiler and color broiler chickens in Taiwan, is similar in various aspects to financial volatility as it relates to the risk and returns associated with agricultural production. However, as the characteristics of agricultural markets may be different from financial markets, the results arising from empirical risk analysis need to be investigated. The broiler and color broiler industries are the second and third largest livestock industries in Taiwan. When Taiwan applied to join the World Trade Organization (WTO) in the 1990s, these two industries faced the threat of deregulation of chicken meat imports. However, developments in these two industries have not been the same under deregulation, with the level of competition in the broiler and color broiler industries being markedly different. The purpose of the paper is to model the prices, growth rates and their respective volatilities in weekly broiler and color broiler chicken prices in Taiwan from January 1995 to June 2007. The empirical results show that the time series of broiler and color broiler prices, their logarithms and their growth rates are stationary, and that the estimated symmetric and asymmetric conditional volatility models all fit the data extremely well. The empirical second moment and log-moment conditions also support the statistical adequacy of the estimated volatility models. The empirical results have significant implications for risk management and policy considerations in the agricultural production industry in Taiwan.

Suggested Citation

  • Huang, Biing-Wen & Chen, Meng-Gu & Chang, Chia-Lin & McAleer, Michael, 2009. "Modelling risk in agricultural finance: Application to the poultry industry in Taiwan," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(5), pages 1472-1487.
  • Handle: RePEc:eee:matcom:v:79:y:2009:i:5:p:1472-1487
    DOI: 10.1016/j.matcom.2008.06.005
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    2. Lenka Rumánková & T. Maier & J. Mach & L. Čechura & Z. Křístková & M. Malý & Z. Malá & P. Hálová, 2012. "Simulations at Czech poultry market," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(4), pages 327-334.
    3. Hwang, Tsorng-Chyi & Chen, Meng-Gu & Chang, Chia-Lin, 2011. "Price stabilization in the Taiwan hog and broiler industries: Evidence from a STAR approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 82(2), pages 213-219.
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    5. Nanying Wang & Jack E. Houston, 2016. "The Co-Movement between Non-GM and GM Soybean Prices in China: Evidence from Dalian Futures Market (2004-2014)," Applied Economics and Finance, Redfame publishing, vol. 3(4), pages 37-47, November.
    6. Wang, Nanying & Houston, Jack, 2015. "The Comovement between Non-GM and GM Soybean Price in China: Evidence from Dalian Futures Market," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196775, Southern Agricultural Economics Association.
    7. Hari Sharma Neupane & Chandra Lal Shrestha & Tara Prasad Upadhyaya, 2012. "Modelling Monthly International Tourist Arrivals and Its Risk in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 24(1), pages 28-47, April.
    8. Hari Sharma Neupane & Chandra Lal Shrestha & Tara Prasad Upadhyaya, 2012. "Modelling Monthly International Tourist Arrivals and Its Risk in Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 24(1), pages 28-47, April.

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