The Theory of Storage and Price Dynamics of Agricultural Commodity Futures: the Case of Corn and Wheat

Using a restricted version of the BEKK model it is tested an implication of the theory of storage that supply-and-demand fundamentals affect the price dynamics of agricultural commodities. The commodities under analysis are corn and wheat. An interest-storage-adjusted-spread was used as a proxy vari...

Full description

Saved in:
Bibliographic Details
Published inEnsayos Revista de Economía Vol. 29; no. 1; pp. 1 - 22
Main Author Benavides Perales, Guillermo
Format Journal Article
LanguageEnglish
Published Universidad Autónoma de Nuevo León, Facultad de Economía 01.05.2010
Subjects
Agricultural commodities
BEKK model
multivariate GARCH
Samuelson hypothesis
theory of storage
Online AccessGet full text

Cover

More Information
Summary:Using a restricted version of the BEKK model it is tested an implication of the theory of storage that supply-and-demand fundamentals affect the price dynamics of agricultural commodities. The commodities under analysis are corn and wheat. An interest-storage-adjusted-spread was used as a proxy variable for supply-and-demand fundamentals to test the aforementioned implication for both commodities. It is also tested the Samuelson hypothesis that spot prices have higher volatility than futures prices. It is found that the interest-storage-adjusted-spread has had a statistically significant positive influence on the spot and futures returns for both commodities. Likewise, the results also show that spot price returns have higher volatility compared to futures price returns which is consistent with the Samuelson hypothesis. The results of the aforementioned tests are consistent with both theories and with the existing literature related to commodity futures. JEL Classification: C22, G10, Q14.
ISSN:1870-221X
2448-8402
DOI:10.29105/ensayos29.1-1