Modelling Conditional Correlations in the Volatility of Asian Rubber Spot and Futures Returns

Tanchanok Khamkaew, Michael McAleer and Roengchai Tansuchat
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Tanchanok Khamkaew: Faculty of Economics, Maejo University
Roengchai Tansuchat: Faculty of Economics, Maejo University

No CIRJE-F-675, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Asia is presently the most important market for the production and consumption of natural rubber. World prices of rubber are not only subject to changes in demand, but also to speculation regarding future markets. Japan and Singapore are the major futures markets for rubber, while Thailand is one of the world's largest producers of rubber. As rubber prices are influenced by external markets, it is important to analyse the relationship between the relevant markets in Thailand, Japan and Singapore. The analysis is conducted using several alternative multivariate GARCH models. The empirical results indicate that the constant conditional correlations arising from the CCC model of Bollerslev (1990) lie in the low to medium range. The results from the VARMA-GARCH model of Ling and McAleer (2003) and the VARMA-AGARCH model of McAleer et al. (2009) suggest the presence of volatility spillovers and asymmetric effects of positive and negative return shocks on conditional volatility. Finally, the DCC model of Engle (2002) suggests that the conditional correlations can vary dramatically over time. In general, the dynamic conditional correlations in rubber spot and futures returns shocks can be independent or interdependent.

New Economics Papers: this item is included in nep-sea
Date: 2009-10

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