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Renewable versus nonrenewable resources: an analysis of volatility in futures prices
Author(s) -
Gevorkyan Arkady
Publication year - 2017
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12194
Subject(s) - non renewable resource , futures contract , volatility (finance) , economics , autoregressive conditional heteroskedasticity , econometrics , financial economics , renewable energy , engineering , electrical engineering
This study outlines a new approach for differentiating commodity futures based on their exhaustibility. Various aspects of volatility in the futures prices of renewable resources (palm oil, coffee, soya beans, rice, wheat and corn) and nonrenewable resources (zinc, aluminium, natural gas, gold, crude oil and copper) are studied, exploring whether volatility is greater in the former than in the latter. We use a generalised autoregressive conditional heteroskedasticity ( GARCH ) model to test our main hypothesis that the volatility in futures prices for renewable resources has recently been equal to or greater than the volatility in futures prices for nonrenewable resources. Our key findings suggest that futures prices for some renewable resources have greater variance than those for benchmark crude oil in a simulated GARCH series. We extend our analysis using a nonlinear vector smooth transition autoregressive ( VSTAR ) model to test for the existence of a shifting‐mean tendency in the commodity series that we researched. We show that transition from a stable to a volatile regime is more abrupt for renewable resources.