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Asymmetric Volatility Modeling of Spot Prices of Arabic Coffee in Brazil

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  • da Silva, Carlos Alberto
  • Ferreira, Leo da

Abstract

This paper examines the volatility of daily returns of spot prices of Arabica Coffee through conditional variance models, also called heteroskedasticity models. The data used in the analysis refers to the January 3, 2000 to June 15, 2012 period. The empirical results show reactions of persistency and asymmetry in the variance of their returns, in other words, both good and bad news differently impacts on the volatility of returns according to the EGARCH (1.1) and TARCH (1.1) models. However, from the standpoint of performing predictions, the model that best adapted heteroskedasticity data was EGARCH (1.1) with t - Student's distribution. The coffee market presents strong evidence of such result, since the supply shock yields increases in price levels of the commodity. The empirical results suggest the need of proper strategic instruments of hedging in view of the accentuated shock persistency in Arabic Coffee price volatility returns.

Suggested Citation

  • da Silva, Carlos Alberto & Ferreira, Leo da, 2015. "Asymmetric Volatility Modeling of Spot Prices of Arabic Coffee in Brazil," 2015 Conference, August 9-14, 2015, Milan, Italy 211556, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:211556
    DOI: 10.22004/ag.econ.211556
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    References listed on IDEAS

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    6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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