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The Effects of Dollar/Sterling Exchange Rate Volatility on Futures Markets for Coffee and Cocoa

Adusei Jumah () and Robert Kunst ()

No 73, Economics Series from Institute for Advanced Studies

Abstract: The paper investigates the extent to which the dollar/sterling exchange rate fluctuations affect coffee and cocoa futures prices on the London LIFFE and the New York CSCE by means of multivariate GARCH models - under the assumption that traders in perfectly competitive markets have equal access to all available information on changes in weather and in global demand and supply conditions. In three out of the four investigated cases, exchange rate posed as a main source of risk for the commodity futures price. The significance and form of volatility spill-over effects of a bilateral exchange rate are shown to be specific for commodity and market. A forecasting comparison on the basis of the identified models suggests that possible gains in prediction accuracy may be small.

Keywords: Commodity markets; Multivariate GARCH models; Exchange rates; Volatility; Forecasting (search for similar items in EconPapers)
JEL-codes: C32 C53 G15 Q14 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1999-10
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Journal Article: The effects of dollar-sterling exchange rate volatility on futures markets for coffee and cocoa (2001)
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