Impact of food price volatility on the US restaurant sector

Gazi Uddin, Jose Arreola Hernandez, Anupam Dutta, Sang Hoon Kang and Seong-Min Yoon

Applied Economics, 2020, vol. 52, issue 39, 4250-4262

Abstract: Although fluctuations in agricultural commodity prices appear to be a source of risk to the US restaurant sector, the effect that volatility of food price has on the performance (returns) of that sector receives little or no attention in the relevant literature. We fill this gap by modelling the price and returns of corn and wheat and the volatilities of the US restaurant equity sector through a GARCH-jump intensity model. We find evidence indicating that the US restaurant sector is sensitive to food volatility shocks. Food price volatility negatively impacts US restaurant sector equity returns, implying that increases in food price volatility undermine restaurant sector performance. Also, food price volatility is observed to influence the restaurant sector symmetrically, indicating that changes in food volatility (increases and decreases) have homogeneous effects on the US restaurant sector performance. Implications of the results are discussed.

Date: 2020
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DOI: 10.1080/00036846.2020.1733478

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