Volatility Spillovers for Spot, Futures, and ETF Prices in Energy and Agriculture
Chia-Lin Chang (changchialin@email.nchu.edu.tw),
Chia-Ping Liu and
Michael McAleer
Additional contact information
Chia-Ping Liu: National Tsing Hua University, Taiwan
No 16-046/III, Tinbergen Institute Discussion Papers from Tinbergen Institute
Abstract:
The agricultural and energy industries are closely related, both biologically and financially. The paper discusses the relationship and the interactions on price and volatility, with special focus on the covolatility spillover effects for these two industries. The interaction and covolatility spillovers, or the delayed effect of a returns shock in one asset on the subsequent volatility or covolatility in another asset, between the energy and agricultural industries is the primary emphasis of the paper. Although there has already been significant research on biofuel and biofuel-related crops, much of the previous research has sought to find a relationship among commodity prices. Only a few published papers have been concerned with volatility spillovers. However, it must be emphasized that there have been numerous technical errors in the theoretical and empirical research, which needs to be corrected. The paper not only considers futures prices as a widely-used hedging instrument, but also takes an interesting new hedging instrument, ETF, into account. ETF is regarded as index futures when investors manage their portfolios, so it is possible to calculate an optimal dynamic hedging ratio. This is a very useful and interesting application for the estimation and testing of volatility spillovers. In the empirical analysis, multivariate conditional volatility diagonal BEKK models are estimated for comparing patterns of covolatility spillovers. The paper provides a new way of analyzing and describing the patterns of covolatility spillovers, which should be useful for the future empirical analysis of estimating and testing covolatility spillover effects.
Keywords: Energy and agriculture; covolatility spillovers; spot prices; futures prices; exchange traded funds; biofuels; optimal dynamic hedging (search for similar items in EconPapers)
JEL-codes: C32 C58 G13 Q14 Q42 (search for similar items in EconPapers)
Date: 2016-06-27
References: Add references at CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://papers.tinbergen.nl/16046.pdf (application/pdf)
Related works:
Working Paper: Volatility Spillovers for Spot, Futures, and ETF Prices in Energy and Agriculture (2016)
Working Paper: Volatility spillovers for spot, futures, and ETF prices in energy and agriculture (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20160046
Access Statistics for this paper
More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 (discussionpapers@tinbergen.nl).