Testing for bubbles in agriculture commodity markets
We apply the recent generalized sup augmented Dickey-Fuller (GSADF) test for explosive bubbles (Phillips et al., 2012) to monthly time-series for food, beverages, agricultural raw material, cereals, dairy, meat, oils and sugar indices and a total of 28 agricultural commodities between 1980-2012. We found price bubbles occurred for 6 out of the 10 indices studied and for 6 out of the 28 commodities within food markets. Results from the tests can help implementing policies aimed at mitigating effects of future price bubbles to targeted food commodity markets that may require special attention.
Adämmer, P. and Bohl, M.T. (2015). “Speculative bubbles in agricultural prices”. The Quarterly Review of Economics and Finance, 55: 67-76. http://doi.org/bdmd.
Abbott, P. (2013). “Biofuels, Binding Constraints and Agricultural Commodity Price Volatility”. In Chavas, J.P., Hummels D. and Wright, B. (Eds.): The Economics of Food Price Volatility. National Bureau of Economic Research, Massachusetts.
Alston, J.M., Beddow, J.M. and Pardey, P.G. (2010). “Global Patterns of Crop Yields and Other Partial Productivity Measures and Prices”. In Alston, J.M., Babcock, B.A. and Pardey, P.G. (Eds.): The Shifting Patterns of Agricultural Production and Productivity Worldwide. Iowa State University, Ames.
Araujo-Enciso, S.R., Blanco, M., Artavia, M., Ramos, F., Fernández, F.J., Van Doorslaer, B., Fumagalli, D. and Ceglar, A. (2014). Volatility modelling: long term challenges and policy implications. Scientific Paper No. 5, ULYSSES “Understanding and coping with food markets voLatilitY towards more Stable World and EU food SystEmS”.
Aulerich, N.M., Irwin, S.H. and Garcia, P. (2014). “Bubbles, Food Prices and Speculation”. In Chavas, J.P., Hummels, D. and Wright, B.D. (Eds.): The economics of Food Price Volatility. The University of Chicago Press, Chicago.
Balcombe, K. (2011). “The nature and determinants of volatility in agricultural prices: an empirical study”. In Prakash, A. (Ed.): Safeguarding food security in volatile global market. FAO, Rome.
Balcombe, K. (2009). “The nature and determinants of volatility in agricultural prices: an empirical study from 1962-2008”. In Sarris A. and Morrison, J. (Eds.): The evolving structure of world agricultural trade. FAO, Rome: 109-136.
Balcombe, K. and Rapsomanikis, G. (2008). “Bayesian estimation and selection of nonlinear vector error correction models: The case of sugar-ethanol-oil nexus in Brazil”. American Journal of Agricultural Economics, 90(3): 658-668.
Bioversity, CGIAR Consortium, FAO, IFAD, IFPRI, IICA, OECD, UNCTAD, Coordination Team of UN High Level Task Force on the Food Security Crisis,
WFP, World Bank, and WTO. (2012). Sustainable Agricultural Productivity Growth and Bridging the Gap for Small Family Farms: Interagency Report to the Mexican G20 Presidency, FAO and the OECD.
Blanchard, O.J. and Watson, M.W. (1982). “Bubbles, Rational Expectations, and Financial Markets”. In Wachtel, P (Ed.): Crisis in the Economic and Financial Structure. D.C. Heathand Company, Lexington, M.A. : 295-315. http://doi.org/fs45hj.
Brooks, C. and Katsaris, A. (2005). “A Three-Regime Model of Speculative Behaviour: Modelling The Evolution of the S&P 500 Composite Index”. The Economic Journal, 115(505): 763-793. http://doi.org/fn748w.
Cashin, P., McDermott, C.J. and Scott, A. (2002). “Booms and Slumps in World Commodity Prices”. Journal of Development Economics, 69: 277-296.
Cashin, P., Liang, H. and McDermott, C.J. (2000). “How persistent are shocks to world commodity prices?” IMF Staff Papers, 47: 177-217.
Dass, N., Massa, M. and Patgiri, R. (2008). “Mutual Funds and Bubbles: The Surprising Role of Contractual Incentives”. Review of Financial Studies, 21(1): 51-99. http://doi.org/dzv9wd.
Deaton, A. and Laroque, G. (1992). “On the Behaviour of Commodity Prices”. Review of Economic Studies, 59(1): 1-23. http://doi.org/c728s8.
De Long, B., Shleifer, A., Summers, L. and Waldmann, R. (1990). “Noise Trader Risk in Financial Markets”. Journal of Political Economy, 98(4): 703-38.
DeMarzo, P., Kaniel, R. and Kremer, I. (2007). “Relative Wealth Concerns and Financial Bubbles”. Review of Financial Studies, 21(1): 19-50. http://doi.org/fpgc4f.
Diba, B.T. and Grossman, H.I. (1988). “The theory of rational bubbles in stock prices”. The Economic Journal, 98(392): 746-754.
Etienne, X.L., Irwin, S.H. and Garcia, P. (2014). “Bubbles in food commodity markets: Four decades of evidence”. Journal of International Money and Finance, 42: 129-155. http://doi.org/bdmf.
Evans, G.W. (1991). “Pitfalls in testing for explosive bubbles in asset prices”. American Economic Review, 81(4): 922-930.
FAO. (2011). Safeguarding food security in volatile global markets. FAO, Rome.
Friedman, M. (1953). Essays in Positive Economics, University of Chicago Press, Chicago.
Froot, K. and Obstfeld, M. (1991). “Intrinsic Bubbles: The Case of Stock Prices”. American Economic Review, 81(5): 1189-1214. http://doi.org/br4vfc.
Gilbert, C.L. (2010). “Speculative influences on commodity prices”. United Nations Conference of Trade and Development, 197. Geneva, Switzerland.
Grilli, E.R. and Yang, M.C. (1988). “Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows”. The World Bank Economic Review, 2(1): 1-47.
Gutierrez, L. (2013). “Speculative bubbles in agricultural commodity markets”. European Review of Agricultural Economics, 40(2): 217-238. http://doi.org/bdmg.
Gustafson, R.L. (1958). “Carryover Levels for Grains: A Method for Determining Amounts that are Optimal under Speciﬁed Conditions”. USDA Technical Bulletin, 1178. Available at: http://purl.umn.edu/157231. Last access: February, 2015.
Hernández, M. and Torero, M. (2010). “Examining the dynamic relationship between spot and futures prices of agricultural commodities”. Commodity Market Review 2009-2010: 47-87.
Homm, U. and Breitung, J. (2012) “Testing for Speculative Bubbles in Stock Markets: A Comparison of Alternative Methods”. Journal of Financial Econometrics, 10(1): 198-231. http://doi.org/fzdstq.
Irwin, S., Sanders, D.R. and Merrin, R.P. (2009). “Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)”. Journal of Agricultural and Applied Economics, 41(2): 377-391.
Kurosaki, T. and Fafchamps, M. (2002). “Insurance Market Efﬁciency and Crop Choices in Pakistan”. Journal of Development Economics, 67(2): 419-53. http://doi.org/cgwj7j.
Larson, D. and Plessman, F. (2002). “Do farmers choose to be inefficient? Evidence from Bicol Philippines”. Policy Research Working Paper, 2787. The World Bank, Washington, D.C. http://doi.org/b5w9v9.
Liu, X., Filler, G., and Odening, M. (2013). Testing for speculative bubbles in agricultural commodity prices: A regime switching approach. Agricultural Finance Review, 73(1): 179-200.
Phillips, P.C.B. and Magdalinos, T. (2007) “Limit theory for moderate deviations from a unit root”. Journal of Econometrics, 136(1): 115-130. http://doi.org/cv7bpq.
Phillips, P.C.B., Shi, S. and Yu, J. (2012). “Testing for multiple bubbles”. Cowles Foundation Discussion Paper, 1843. Yale University.
Phillips, P.C.B., Wu, Y. and Yu, J. (2011). “Explosive behaviour in the 1990s NASQAD: When did exuberance escalate asset values?” International Economic Review, 52: 201-226.
Phillips, P.C.B. and You, J. (2011). “Dating the timeline of financial bubbles during the subprime crisis”. Quantitative Economics, 2(3): 455-491. http://doi.org/d77th5.
Pindyck, R. (1993). “The Present Value Model of Commodity Pricing”. The Economic Journal, 103: 511-530.
Pindyck, R.S. and Rotemberg, J.J. (1990). “The excess co-movement of commodity prices”. The Economic Journal, 100: 1173-1189. http://doi..org/d2hgdw.
Rapsomanikins, G. (2011). “Price transmission and volatility spillovers in food markets”. In: Prakash, A. (Ed.): Safeguarding food security in volatile global markets, Food and Agriculture. Organization of the United Nations, Rome.
Robles, M., Torero, M. and Von Braun, J. (2009). “When Speculation Matters”. Issue Brief, 57, International Food Policy Research Institute. Washington DC. Available at: http://www.ifpri.org/pubs/ib/ib57.asp. Last access: November, 2014.
Sanders, D.R. and Irwin, S.H. (2010). “A speculative bubble in commodity futures prices? Cross-sectional evidence”. Agricultural Economics, 41: 25-32.
Sanders, D.R. and Irwin, S.H. (2011a). “New Evidence on the Impact of Index Funds in U.S. Grain Futures Markets”. Canadian Journal of Agricultural Economics, 59(4): 519-32. http://doi.org/b93j6b.
Sanders, D.R. and Irwin, S.H. (2011b). “The Impact of Index Funds in Commodity Futures Markets: A Systems Approach”. Journal of Alternative Investments, 14: 40-49.
Serra, T, Zilberman, D., Gil, J.M. and Goodwin, B.K. (2010). “Price Transmission in the US Ethanol Market”. In Khanna, M., Scheffran, J., Zilberman, D. (Eds.): Handbook of Bioenergy Economics and Policy Natural Resource Management and Policy. Springer: 33; 55-72.
Tothova, M. (2011). “Main challenges in price volatility in agricultural commodity markets”. In Piot-Lepetit, I. and M’Barek, R. (Eds.). Methods to Analyse Agricultural Commodity Price Volatility. Springer, New York: 13-29.
UNCTAD. (2011). Price Formation in Financialized Commodity Markets: The Role of Information. Study prepared by the secretariat of the United Nations Conference on Trade and Development.
Van Norden, S. and Schaller, H. (1999). “Speculative behaviour, regime switching, and stock market crashes”. In Rothman, P. (Eds.): Nonlinear Time Series Analysis of Economic and Financial Data, Dordrecht Kluwer: 321-256.
Von Braun, J. and Torero, M. (2009). “Implementing physical and virtual food reserves to protect the poor and prevent market failure”. Policy Briefs, 10. International Food Policy Research Institute (IFPRI).
Wright, B. (2010). “International Grain Reserves and Other Instruments to Address Volatility in Grain Markets”. Policy Research Working Paper,5028. The World Bank. http://doi.org/bdmj.
Metrics powered by PLOS ALM
- There are currently no refbacks.
e-ISSN: 2174-7350 ISSN: 1578-0732 https://doi.org/10.4995/earn