An Empirical Study of Price Correlations: 2. The Decrease in Price Correlation with Distance and the Concept of Correlation Length

B Roehner
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B Roehner: Laboratoire de Physique Théorique et Hautes Énergies, Université Paris VII, 75251 Paris Cedex 05, France

Environment and Planning A, 1989, vol. 21, issue 3, 289-298

Abstract: The dependence of the correlation between wheat price fluctuations on different markets with respect to the distance between those markets is investigated. It is shown that the decrease in the correlation is exponential and is governed by a characteristic distance which is called the correlation length for wheat prices. This is a measure of the level of market integration in a given area. The magnitude of the correlation length is compared for different cereals: wheat, rye, and oats, and the evolution of the correlation length during the 19th century is studied. In particular, it is observed that subsistence crises are characterised by a collective behaviour of the economy which results in a sudden peak in the correlation length. Last, the part played by the spatial correlation between precipitations is investigated. It appears to be rather small; consequently, the price-correlation length is primarily the result of economic factors.

Date: 1989
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Persistent link: https://EconPapers.repec.org/RePEc:sae:envira:v:21:y:1989:i:3:p:289-298

DOI: 10.1068/a210289

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