Evaluating the Dynamic Nature of Market Risk
This study examines the systematic risk present in major crops for the United States and three corn-belt states. An index of commodities is used in conjunction with cash receipts to generate dynamic estimates of the systematic risk for each crop and state. In our study, we find that beta estimates from a time varying parameter model (FLS) and OLS formulation are substantially different. From our graphs of betas over time, one gains insight into the changing nature of risk and the impact of institutional and macroeconomic events. Systematic risk is shown to increase for most crops over the analyzed period with significant changes in volatility after the collapse of the Bretton Woods Accord.
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