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 (christiangross23@gmail.com) and Waldemar Souza

No 5116, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

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 co ee prices, suggesting a greater role of local information for volatility dynamics during this period. We also show that local Brazilian spot markets incorporate information from both the domestic and the 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)
Pages: 34 pages
Date: 2016-07
New Economics Papers: this item is included in nep-cse and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The role of emerging economies in the global price formation process of commodities: Evidence from Brazilian and U.S. coffee markets (2019)
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