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The Analysis of Wheat Prices Using Multiple Structural Breakpoint Co-Integration Test

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  • Gokhan Cinar
  • Adnan Hushmat

Abstract

From 2005 to 2008, high volatility in the markets affected grain prices significantly. This high volatility in grain prices made many researchers curious, and many discussions aroused from this topic. This study analyzes wheat price behavior during this period of high volatility. We estimate a return index for wheat using spot and futures wheat prices with the help of a present value model. To analyze the cointegration between the wheat prices and return index, a new co-integration test with multiple structural breaks, developed by Daiki Maki (2012), is used. The long-run cointegration coefficients are estimated using the Dynamic Ordinary Least Squares methodology. The empirical results show that there is cointegration between the spot and futures wheat prices, which tends to change at breakpoints. In other words, there is an equilibrium relation between spot prices and futures prices; however, it becomes unstable during the crisis in 2008. The results may help in understanding the dynamics of wheat prices, especially during high-volatility periods. Keywords: Futures market, Multiple structural-breakpoints, Price explosiveness, Price discovery, Wheat market. JEL: C32, G13, G14, Q11, Q14.

Suggested Citation

  • Gokhan Cinar & Adnan Hushmat, 2021. "The Analysis of Wheat Prices Using Multiple Structural Breakpoint Co-Integration Test," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 68(3), pages 359-374.
    • Handle: RePEc:voj:journl:v:68:y:2021:i:3:p:359-374:id:1425
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    More about this item

    Keywords

    Futures market; Multiple structural-breakpoints; Price explosiveness; Price discovery; Wheat market;
    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
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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