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Food-fuel nexus beyond mean-variance: New evidence from a quantile approach

Author

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  • Wang, Linjie
  • Li, Jian
  • Etienne, Xiaoli L.

Abstract

This paper investigates the dynamic relationship between crude oil, ethanol, and corn markets across various quantiles of return distributions, as well as at higher statistical moments. Using a quantile vector autoregression model and data from 2007 to 2022, we find that the cross-market linkages are quantile dependent, with the strongest connections observed in the tails of the distribution. A shock to the oil market significantly impacts ethanol and corn returns under extreme bearish and bullish conditions. Positive shocks to the corn market reduce ethanol returns when the ethanol market is highly bullish, but this effect becomes positive in the left tail of the distribution. We also identify significant co-movement in higher statistical moments between these markets. Extreme excess kurtosis in the food-fuel nexus is more likely to occur with high financial market uncertainty, a bullish stock market, contracting industrial production, and a strong US dollar. In addition to these variables, credit spreads, futures market liquidity, futures term structure, and hedging pressure also influence kurtosis in individual markets within the nexus.
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Suggested Citation

  • Wang, Linjie & Li, Jian & Etienne, Xiaoli L., 2022. "Food-fuel nexus beyond mean-variance: New evidence from a quantile approach," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322343, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea22:322343
    DOI: 10.22004/ag.econ.322343
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    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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