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Futures Market Volatility, Exchange Rate Uncertainty and Cereals Exports: Empirical Evidence from France

Author

Listed:
  • Raphaël Chiappini

    (University of Nice Sophia Antipolis, France
    GREDEG CNRS)

  • Yves Jégourel

    (University of Bordeaux, France
    LAREFI)

Abstract

This paper investigates the impact of both exchange rate and futures price volatility on bilateral cereals exports from France. Using the Poisson pseudo-maximum likelihood (PPML) estimator developed by Santos Silva and Tenreyro (2006) to deal with the problem of zero trade ows when estimating a gravity equation, we show that exchange rate uncertainty has a strong negative impact on French cereals trade. Surprisingly, we nd also that higher futures price volatility is associated with increased French cereals exports. Since the PPML method allows for commodity specific estimation of this relationship, we demonstrate that these results are rather commodity-specific and not uniform across individual cereals commodities. For example, we nd that realized futures price volatility has a significant and positive impact on French exports of four commodities: barley, durum wheat, maize and oats. We suggest that the storage behaviour of grains elevators and physical traders can explain this seemingly counter-intuitive result. In contrast to currencies, basis variability, i.e. the instability surrounding the spread between commercial spot prices and futures prices, can matter more than price instability, and can lead market participants to reduce their stocks, i.e. to sell, when the level of this instability is high.

Suggested Citation

  • Raphaël Chiappini & Yves Jégourel, 2014. "Futures Market Volatility, Exchange Rate Uncertainty and Cereals Exports: Empirical Evidence from France," GREDEG Working Papers 2014-34, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2014-34
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    References listed on IDEAS

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    More about this item

    Keywords

    Exports; exchange rate; futures prices; volatility; Poisson pseudo-maximum likelihood (PPML);

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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