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The role of emerging economies in the global price formation process of commodities: Evidence from Brazilian and U.S. coffee markets

Martin T. Bohl, Christian Gross () and Waldemar Souza

International Review of Economics & Finance, 2019, vol. 60, issue C, 203-215

Abstract: This paper examines the role of the Brazilian futures exchange, BM&F Bovespa, in the global price formation process of Arabica coffee. Using a multivariate GARCH model we find bi-directional information transmission in terms of spillover effects between the BM&F Bovespa futures contract for Arabica coffee and the ‘Coffee C’ futures contract traded at the Intercontinental Exchange (ICE) in New York. Moreover, our empirical results indicate that the influence of the BM&F Bovespa futures market on the ICE futures market increased during the 2010–2012 boom in coffee prices, suggesting a greater role of local market information for price and volatility dynamics during this period. We also show that local Brazilian spot markets incorporate information from the domestic and foreign futures market. Taken together, our findings highlight the great relevance of the BM&F Bovespa futures market in the global price formation process of Arabica coffee.

Keywords: Commodity futures markets; Cross-border volatility transmission; Emerging futures exchanges; Price spikes in commodity markets (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G15 Q02 (search for similar items in EconPapers)
Date: 2019
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Working Paper: The Role of Emerging Economies in the Global Price Formation Process of Commodities: Evidence from Brazilian and U.S. Coffee Markets (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:60:y:2019:i:c:p:203-215

DOI: 10.1016/j.iref.2018.11.002

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