The linkage between international dairy commodity prices and volatility: a panel-GARCH analysis

Rezitis, A.N. and Tremma, O. (2022) The linkage between international dairy commodity prices and volatility: a panel-GARCH analysis. Journal of Agribusiness in Developing and Emerging Economies.

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Abstract

Purpose The study's purpose is to investigate the price volatility of four dairy commodities (skim milk powder [SMP], whole milk powder [WMP], butter and cheddar cheese) in the three most significant regional markets (EU, Oceania and US) in the international dairy market. Design/methodology/approach The study uses a panel-Generalized Autoregressive Conditional Heteroskedastic (panel-GARCH) modeling technique and data from January 12, 2001, to April 28, 2017. Findings Conditional volatility was higher during subperiods 2007–2010 and 2014–2016 when conditional cross-correlations between prices had the lowest values. In some cases, they were negative (i.e. between the EU and the USA and between Oceania and the USA for both butter and cheese). Interdependence across the three dairy markets, especially for SMP and WMP markets and for the butter market between EU and Oceania is also strongly evidenced. Interdependence is responsible for the spillover of price shocks across the three regions. Research limitations/implications The data set used should be extended to cover the COVID-19 pandemic period. Originality/value This is the first study to use panel-GARCH to examine international dairy prices and volatility linkages, where previous studies mainly used multivariate GARCH models. Panel-GARCH allows a high-dimensional data series (i.e. 12 dairy prices) and generates potential efficiency gains in estimating conditional variances and covariances by incorporating information about heterogeneity across markets and considering their interdependence.

Item Type: Article
Keywords: Conditional volatility, implied conditional cross-correlation, panel-GARCH, global food crisis
Divisions: Food, Land and Agribusiness Management
Depositing User: Mrs Rachael Harper
Date Deposited: 18 May 2022 14:03
Last Modified: 18 May 2022 14:03
URI: https://hau.repository.guildhe.ac.uk/id/eprint/17839

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