Water, Food, Energy: Searching for the Economic Nexus

Massimo Peri (), Daniela Vandone () and Lucia Baldi ()

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: Water, food and energy (WFE) are strongly interconnected: each depends on the other for a lot of concerns, spanning from guaranteeing access to services, to environmental, social and ethical impact issues, to price relations. Using daily data spanning from November 2001 to May 2013 we empirically analyze the volatility spillovers and the dynamic conditional correlation between the WFE prices using a multivariate GARCH method. We then apply a multifactor market model based on the theory of Capital Asset Pricing Model (CAPM) with the aim to analyze the impact of agriculture and energy price trends on the share price value of exchange-listed companies that derive a substantial portion of their revenues from the potable and wastewater industry. Results highlight the existences of a financial nexus between WFE that is particular exacerbate during finance turbulence. Understanding price dynamics is relevant both to water, agriculture and energy policy makers and to investors, since it influences information dissemination, price discovery, efficient allocation of resources, hedging and portfolio optimization.

Keywords: WFE nexus; volatility spillover; Multifactor Market Model; stock prices (search for similar items in EconPapers)
JEL-codes: C58 E39 G11 Q21 Q25 (search for similar items in EconPapers)
Date: 2014-04-10
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