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Determinants of endogenous price risk in corn and wheat futures markets
Author(s) -
Goodwin Barry K.,
Schnepf Randy
Publication year - 2000
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/1096-9934(200009)20:8<753::aid-fut3>3.0.co;2-f
Subject(s) - futures contract , economics , autoregressive conditional heteroskedasticity , heteroscedasticity , econometrics , autoregressive model , futures market , financial economics , risk premium , volatility (finance)
This analysis evaluates determinants of price variability in U.S. corn and wheat futures markets. The analysis is conducted in two segments. In the first segment, conditional heteroscedasticity models of price variability are estimated and used to examine the extent to which market conditions influence price variability. The second component of the analysis uses nonstructural vector autoregressive models to evaluate factors related to implied volatilities calculated from options premia. Our results indicate that corn and wheat price variability is significantly related to the ratio of use to stocks, futures market activity, and growing conditions. In addition, important seasonal and autoregressive effects are revealed. Our results provide an intuitive interpretation for GARCH and ARCH effects, which are often demonstrated for futures price data. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:753–774, 2000