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Modelling the Asymmetric Volatility in Hog Prices in Taiwan: The Impact of Joining the WTO

  • Chia-Lin Chang

    (Department of Applied Economics, National Chung Hsing University)

  • Biing-Wen Huang

    (Department of Applied Economics, National Chung Hsing University)

  • Meng-Gu Chen

    (Department of Applied Economics, National Chung Hsing University)

  • Michael McAleer

    (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute and Center for International Research on the Japanese Economy (CIRJE), Faculty of Economics, University of Tokyo)

The hog industry, where prices are determined according to an auction system, is of vital importance to the agricultural industry in Taiwan by providing significant production and employment. In particular, there were significant impacts on daily hog prices in the periods before, during and after joining the WTO, which we will refer to as periods of anticipation, adjustment and settlement. The purpose of the paper is to model the growth rates and volatility in daily hog prices in Taiwan from 23 March 1999 to 30 June 2007, which enables an analysis of the effects of joining the WTO. The paper provides a novel application of financial volatility models to agricultural finance. The empirical results have significant implications for risk management and policy considerations in the agricultural industry in Taiwan, especially when significant structural changes, such as joining the WTO, are concerned. The three sub-samples relating to the period before, during and after joining the WTO display significantly different volatility persistence, namely symmetry, asymmetry but not leverage, and leverage, respectively, whereby negative shocks increase volatility but positive shocks of a similar magnitude decrease volatility.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2009/2009cf642.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-642.

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Length: 38 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:tky:fseres:2009cf642
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