Modelling the Asymmetric Volatility in Hog Prices in Taiwan: The Impact of Joining the WTO

37 Pages Posted: 11 Mar 2009

See all articles by Chia-Lin Chang

Chia-Lin Chang

National Chung Hsing University - Department of Applied Economics, Department of Finance

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Meng-Gu Chen

National Chung Hsing University

Biing-Wen Huang

National Chung Hsing University - Department of Applied Economics

Date Written: March 9, 2009

Abstract

The hog industry, where prices are determined according to an auction system, is of vital importance to the agricultural industry in Taiwan by providing significant production and employment. In particular, there were significant impacts on daily hog prices in the periods before, during and after joining the WTO, which we will refer to as periods of anticipation, adjustment and settlement. The purpose of the paper is to model the growth rates and volatility in daily hog prices in Taiwan from 23 March 1999 to 30 June 2007, which enables an analysis of the effects of joining the WTO. The paper provides a novel application of financial volatility models to agricultural finance. The empirical results have significant implications for risk management and policy considerations in the agricultural industry in Taiwan, especially when significant structural changes, such as joining the WTO, are concerned. The three sub-samples relating to the period before, during and after joining the WTO display significantly different volatility persistence, namely symmetry, asymmetry but not leverage, and leverage, respectively, whereby negative shocks increase volatility but positive shocks of a similar magnitude decrease volatility.

Keywords: Hog prices, joining the WTO, conditional volatility models, asymmetry, leverage, moment conditions

JEL Classification: Q14, G18, G32

Suggested Citation

Chang, Chia-Lin and McAleer, Michael and Chen, Meng-Gu and Huang, Biing-Wen, Modelling the Asymmetric Volatility in Hog Prices in Taiwan: The Impact of Joining the WTO (March 9, 2009). Available at SSRN: https://ssrn.com/abstract=1355869 or http://dx.doi.org/10.2139/ssrn.1355869

Chia-Lin Chang (Contact Author)

National Chung Hsing University - Department of Applied Economics, Department of Finance ( email )

Taichung, Taiwan
China

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

Meng-Gu Chen

National Chung Hsing University

402, No. 250 Kuo Kuang Road, Taiwan
Taichung, Taiwan
China

Biing-Wen Huang

National Chung Hsing University - Department of Applied Economics ( email )

Taichung, Taiwan
China