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How Far Do Shocks Move Across Borders? Examining Volatility Transmission in Major Agricultural Futures Markets

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  • Manuel A. Hernández
  • Raúl Ibarra-Ramírez
  • Danilo R. Trupkin

Abstract

This paper examines the level of interdependence and volatility transmission in global agricultural futures markets. We follow a multivariate GARCH approach to explore the dynamics and cross-dynamics of volatility across major exchanges of corn, wheat, and soybeans between the United States, Europe, and Asia. We account for the potential bias that may arise when considering exchanges with different closing times. The results indicate that agricultural markets are highly interrelated and there are both own- and cross- volatility spillovers and dependence among most of the exchanges. The results also show the major role Chicago plays in terms of spillover effects over the other markets, particularly for corn and wheat. Additionally, the level of interdependence between exchanges has only increased in recent years for some of the commodities.

Suggested Citation

  • Manuel A. Hernández & Raúl Ibarra-Ramírez & Danilo R. Trupkin, 2011. "How Far Do Shocks Move Across Borders? Examining Volatility Transmission in Major Agricultural Futures Markets," Working Papers 2011-15, Banco de México.
  • Handle: RePEc:bdm:wpaper:2011-15
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    References listed on IDEAS

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    More about this item

    Keywords

    Volatility transmission; agricultural commodities; futures markets; Multivariate GARCH.;

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • 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

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