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Forecasting the volatility of biofuel feedstock prices: the US evidence
Author(s) -
Dutta Anupam,
Junttila Juha,
Uddin Gazi S.
Publication year - 2019
Publication title -
biofuels, bioproducts and biorefining
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.931
H-Index - 83
eISSN - 1932-1031
pISSN - 1932-104X
DOI - 10.1002/bbb.1981
Subject(s) - volatility (finance) , biofuel , economics , futures contract , food prices , financial economics , raw material , index (typography) , agriculture , agricultural economics , econometrics , monetary economics , food security , microbiology and biotechnology , chemistry , ecology , organic chemistry , world wide web , computer science , biology
Given that, nowadays, 40% of the US corn crop is used for biofuel production, there is a growing concern that the rise in biofuel production might lead to an increase in food prices. However, it is also obvious that significant growth in biofuel use has minimized the demand for fossil fuel and has hence reduced the volume of carbon emissions. It is therefore crucial to model corn market volatility precisely because such an estimate could play a vital role in stabilizing food and biofuel market prices. For this purpose, we consider using the information content of the corn implied volatility (CIV) index to predict the corn futures market return volatility. Using symmetric and asymmetric GARCH‐class models, we find that the CIV index provides additional information beyond what is contained in the historical volatility of the corn market returns, and the information provided by the CIV index improves volatility forecasts for the US corn market. These findings could be extremely useful for energy market participants. © 2019 Society of Chemical Industry and John Wiley & Sons, Ltd