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The Effects of Dollar/Sterling Exchange Rate Volatility on Futures Markets for Coffee and Cocoa

  • Jumah, Adusei

    (Institute for Advanced Studies, Vienna)

  • Kunst, Robert M.

    (Institute for Advanced Studies, Vienna)

The paper investigates the extent to which the dollar/sterling exchange rate fluctuations affect coffee and cocoa futures prices on the London LIFFE and the New York CSCE by means of multivariate GARCH models - under the assumption that traders in perfectly competitive markets have equal access to all available information on changes in weather and in global demand and supply conditions. In three out of the four investigated cases, exchange rate posed as a main source of risk for the commodity futures price. The significance and form of volatility spill-over effects of a bilateral exchange rate are shown to be specific for commodity and market. A forecasting comparison on the basis of the identified models suggests that possible gains in prediction accuracy may be small.

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File URL: http://www.ihs.ac.at/publications/eco/es-73.pdf
File Function: First version, 1999
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 73.

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Length: 29 pages
Date of creation: Oct 1999
Date of revision:
Handle: RePEc:ihs:ihsesp:73
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  1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  2. Elfakhani, Said & Wionzek, Ritchie J., 1997. "Intermarket spread opportunities between Canadian and American agricultural futures," International Review of Economics & Finance, Elsevier, vol. 6(4), pages 361-377.
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  11. repec:cup:cbooks:9780521634809 is not listed on IDEAS
  12. Holt, Matthew & Aradhyula, Satheesh V., 1990. "Price Risk in Supply Equations: An Application of Garch Time-Series Models to the U.S. Broiler Market," Staff General Research Papers 276, Iowa State University, Department of Economics.
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