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Linkages Between Equity and Global Food Markets: New Evidence from Including Structural Changes

Author

Listed:
  • Mofleh Alshogeathri

    (College of Business Administration, King Saud University, Saudi Arabia)

  • Jamel Jouini

    (Department of Economics, College of Business Administration, King Saud University, Saudi Arabia)

Abstract

The study provides new and robust evidence to the relationship between stock and food markets in terms of shock and volatility spillovers and dependence structure by focusing on the importance of taking into account structural breaks. The results reveal that variance shifts are correctly detected, and that considering them affects volatility persistence, removes return spillovers, and gives rise to significant shock and volatility transmission. They also provide interesting evidence that stock and food markets are weakly dependent, particularly during the 2007-2009 financial crisis period, thereby showing that portfolio diversification benefits could be exploited between the two types of markets, especially over times of heavy financial market fluctuations. Additionally, the findings put forward a substitution mechanism across food classes, given the similarity of the weak correlations for all commodities regardless of the model specification. The study illustrates relevant implications in terms of optimal portfolio allocation and risk minimizing hedge ratio, and allows international investors and market participants to understand properly the shock and volatility transmission across markets and inter-market correlations in order to make sound decisions.

Suggested Citation

  • Mofleh Alshogeathri & Jamel Jouini, 2017. "Linkages Between Equity and Global Food Markets: New Evidence from Including Structural Changes," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(3), pages 166-198, June.
  • Handle: RePEc:fau:fauart:v:67:y:2017:i:3:p:166-198
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    stock and food prices; variance shifts; shock and volatility transmission; optimal weight; hedge ratio; time-varying correlation;
    All these keywords.

    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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