Journal of Food, Agriculture and Environment

The spillover effect of financial factors on the inferior rice market

Author(s):

Nikolaos Sariannidis ^1*, Eleni Zafeiriou ²

Recieved Date: 2010-11-10, Accepted Date: 2011-01-07

Abstract:

Rice as an agricultural good presents significant price volatility. A number of factors play an important role in the price formation. The present study is based on the future prices, in the formation of which financial factors may account for their volatility. The aim of this study was to explore the financial sources of price and volatility distortion of rice future prices. The financial factors surveyed are RCC Rough Rice Composite CBOT (Rice), S&P 500 Stock Index (SP), CL Crude Oil Light Sweet (Crude), Denatured Fuel Ethanol Pit (Ethanol), TNX 10-Year Treasury Note (Bond) and U.S Dollar/Yen exchange rate (D/Y) The methodology employed a model proposed by Glosten et al. (GJR). The results suggested that the mean returns of energy and stock market and the volatility of currency market influence negatively the rice market. The findings are attributed to the consideration that rice is an inferior good. There is also evidence that the volatility of bond market by creating more investment opportunities reduces the conditional volatility of the rice market. Finally, the structural analysis of volatility confirmed that the impact of old news on conditional volatility is higher than that of current news as indicated by the high value of the coefficient of the GARCH terms comparative to the ARCH terms.

Keywords:

Rice futures, volatility, GARCH models, asymmetry, JEL codes G15, Q13, Q14

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Journal: Journal of Food, Agriculture and Environment
Year: 2011
Volume: 9
Issue: 1
Category: Agriculture
Pages: 336-341

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