Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Workplace-Name: Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan
Author-Name: Michael McAleer
Author-Workplace-Name: Department of Quantitative Finance National Tsing Hua University, Taiwan
Author-Name: Yu-Ann Wang
Author-Workplace-Name: Department of Applied Economics National Chung Hsing University Taichung, Taiwan
Title: Modelling Volatility Spillovers for Bio-ethanol,
 Sugarcane and Corn Spot and Futures Prices
Abstract: The recent and rapidly growing interest in biofuel as a green energy source has raised concerns about its impact on the 
	prices, returns and volatility of related agricultural commodities. Analyzing the spillover effects on agricultural 
	commodities and biofuel helps commodity suppliers hedge their portfolios, and manage the risk and co-risk of their biofuel and 
	agricultural commodities. There have been many papers concerned with analyzing crude oil and agricultural commodities 
	separately. The purpose of this paper is to examine the volatility spillovers for spot and futures returns on bio-ethanol and 
	related agricultural commodities, specifically corn and sugarcane. The diagonal BEKK model is used as it is the only 
	multivariate conditional volatility model with well-established regularity conditions and known asymptotic properties. The 
	daily data used are from 31 October 2005 to 14 January 2015. The empirical results show that, in 2 of 6 cases for the spot 
	market, there were significant negative co-volatility spillover effects: specifically, corn on subsequent sugarcane 
	co-volatility with corn, and sugarcane on subsequent corn co-volatility with sugarcane. In the other 4 cases, there are no 
	significant co-volatility spillover effects. There are significant positive co-volatility spillover effects in all 6 cases, 
	namely between corn and sugarcane, corn and ethanol, and sugarcane and ethanol, and vice-versa, for each of the three pairs of 
	commodities. It is clear that the futures prices of bio-ethanol and the two agricultural commodities, corn and sugarcane, have 
	stronger co-volatility spillovers than their spot price counterparts. These empirical results suggest that the bio-ethanol and 
	agricultural commodities should be considered as viable futures products in financial portfolios for risk management.
Classification-JEL: C32, C58, G13, G15, Q14, Q42
Keywords: BBiofuel, Spot prices, Futures prices, Returns, Volatility, Risk, Co-risk, Bio-ethanol, Corn, Sugarcane, Diagonal BEKK model, 
	Co-volatility spillover effects, Hedging, Risk management.
Length: 66 pages 
Creation-Date: 2016-12
Number: 2017-04
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1704.txt
File-URL: https://eprints.ucm.es/id/eprint/40987/1/1704.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1704