Price discovery and volatility spillovers in the French wheat market

Narjiss Araba () and Alain François-Heude ()
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Narjiss Araba: UM - Université de Montpellier, MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier, #DigitAg - Institut Convergences Agriculture Numérique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Alain François-Heude: UM - Université de Montpellier, MRM - Montpellier Research in Management - UPVM - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier

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Abstract: This study contributes to the literature on the information and volatility transmissions for wheat. It investigates the relationship between the French spot market of wheat and its futures contract, through the information and volatility transfersthat occur between them. The analysis of the price discovery process, i.e. the information flow between both markets isbased on daily prices between 2001 and 2018, and applies a vector error correction model (VECM) for the cointegrated price series. The information share, the permanent-transitory and the component share price discovery metrics are then computed to analyzethe link between both markets. Our main finding is that the futures marketcompletely dominates the price discovery for wheat, making the French physical market and agricultural producers exposed to the effects that excessive speculation can have. Furthermore, the volatility spillovers between both markets are analyzed from 2010 to 2018 with a bivariate asymmetric quadratic GARCH model and a BEKK model. We find that volatility spillovers fromthe spot to futuresmarket are stronger thanfrom futuresto spotmarkets

Date: 2019-04-24
New Economics Papers: this item is included in nep-agr
Note: View the original document on HAL open archive server: https://hal.science/hal-03088859v1
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Published in Augustin Cournot Doctoral Days, Apr 2019, Strasbourg, France

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