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Evaluation of Ambiguity in Commodity Futures Markets: Analysis of Corn and Coffee Futures Prices

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  • Souza, Waldemar
  • Palazzi, Rafeal
  • Campani, Carlos Heitor
  • Bohl, Martin

Abstract

Ambiguity, defined as the uncertainty in probability distribution of asset prices resulting from misinterpretation of lack of information, is a current feature of financial assets. There are few empirical studies of ambiguity in financial and commodity futures markets. We define an ambiguity measure of corn and coffee futures daily prices, using the VAR framework to evaluate the autoregressive and cross-impact of the ambiguity and log-returns. Results show that the ambiguity in corn futures prices illustrates a higher impact compared with coffee futures prices, with a possible explanation being the action of non-commercial traders. The knowledge of the ambiguity measure in commodity futures markets can be applied to enhance production, storage, trading and hedging decisions.

Suggested Citation

  • Souza, Waldemar & Palazzi, Rafeal & Campani, Carlos Heitor & Bohl, Martin, 2019. "Evaluation of Ambiguity in Commodity Futures Markets: Analysis of Corn and Coffee Futures Prices," 2019 Conference, April 15-16, 2019, Minneapolis, Minnesota 309636, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:n13419:309636
    DOI: 10.22004/ag.econ.309636
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    References listed on IDEAS

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