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Sugar Prices vs. Financial Market Uncertainty in the Time of Crisis: Does COVID-19 Induce Structural Changes in the Relationship?

Pavel Kotyza (), Katarzyna Czech (), Michał Wielechowski (), Lubos Smutka () and Petr Procházka ()
Additional contact information
Pavel Kotyza: Department of Economics, Faculty of Economics and Management, Czech University of Life SciencesPrague, Kamycka 129, 16500 Prague, Czech Republic
Katarzyna Czech: Department of Econometrics and Statistics, Institute of Economics and Finance, Warsaw University of Life Sciences-SGGW, Nowoursynowska 166, 02-787 Warsaw, Poland
Michał Wielechowski: Department of Economics and Economic Policy, Institute of Economics and Finance, Warsaw University of Life Sciences-SGGW, Nowoursynowska 166, 02-787 Warsaw, Poland
Petr Procházka: Department of Economics, Faculty of Economics and Management, Czech University of Life SciencesPrague, Kamycka 129, 16500 Prague, Czech Republic

Agriculture, 2021, vol. 11, issue 2, 1-16

Abstract: Securitization of the agricultural commodity market has accelerated since the beginning of the 21st century, particularly in the times of financial market uncertainty and crisis. Sugar belongs to the group of important agricultural commodities. The global financial crisis and the COVID-19 pandemic has caused a substantial increase in the stock market volatility. Moreover, the novel coronavirus hit both the sugar market’s supply and demand side, resulting in sugar stock changes. The paper aims to assess potential structural changes in the relationship between sugar prices and the financial market uncertainty in a crisis time. In more detail, using sequential Bai–Perron tests for structural breaks, we check whether the global financial crisis and the COVID-19 pandemic have induced structural breaks in that relationship. Sugar prices are represented by the S&P GSCI Sugar Index, while the S&P 500 option-implied volatility index (VIX) is used to show stock market uncertainty. To investigate the changes in the relationship between sugar prices and stock market uncertainty, a regression model with a sequential Bai–Perron test for structural breaks is applied for the daily data from 2000–2020. We reveal the existence of two structural breaks in the analysed relationship. The first breakpoint was linked to the global financial crisis outbreak, and the second occurred in December 2011. Surprisingly, the COVID-19 pandemic has not induced the statistically significant structural change. Based on the regression model with Bai–Perron structural changes, we show that from 2000 until the beginning of the global financial crisis, the relationship between the sugar prices and the financial market uncertainty was insignificant. The global financial crisis led to a structural change in the relationship. Since August 2008, we observe a significant and negative relationship between the S&P GSCI Sugar Index and the S&P 500 option-implied volatility index (VIX). Sensitivity analysis conducted for the different financial market uncertainty measures, i.e., the S&P 500 Realized Volatility Index confirms our findings.

Keywords: sugar prices; agricultural commodities; financial market uncertainty; VIX; global financial crisis; COVID-19 pandemic; structural break analysis (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2021
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