Renewable versus Nonrenewable Resources: An Analysis of Volatility in Futures Prices

Australian Journal of Agricultural and Resource Economics, DOI: 10.1111/1467-8489.12194, Forthcoming

31 Pages Posted: 9 Dec 2016

See all articles by Arkady Gevorkyan

Arkady Gevorkyan

New School for Social Research; Federal Reserve Bank of Cleveland

Date Written: October 1, 2016

Abstract

This study outlines a new approach for differentiating commodity futures based on their exhaustibility. Various aspects of volatility in the futures prices of renewable resources (palm oil, coffee, soya beans, rice, wheat and corn) and nonrenewable resources (zinc, aluminium, natural gas, gold, crude oil and copper) are studied, exploring whether volatility is greater in the former than in the latter. We use a generalised autoregressive conditional heteroskedasticity (GARCH) model to test our main hypothesis that the volatility in futures prices for renewable resources has recently been equal to or greater than the volatility in futures prices for nonrenewable resources. Our key findings suggest that futures prices for some renewable resources have greater variance than those for benchmark crude oil in a simulated GARCH series. We extend our analysis using a nonlinear vector smooth transition autoregressive (VSTAR) model to test for the existence of a shifting-mean tendency in the commodity series that we researched. We show that transition from a stable to a volatile regime is more abrupt for renewable resources.

Keywords: Futures, GARCH, Renewable Resources, Volatility, Vector Smooth Transition Autoregressive

Suggested Citation

Gevorkyan, Arkady, Renewable versus Nonrenewable Resources: An Analysis of Volatility in Futures Prices (October 1, 2016). Australian Journal of Agricultural and Resource Economics, DOI: 10.1111/1467-8489.12194, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2881715

Arkady Gevorkyan (Contact Author)

New School for Social Research ( email )

6 East 16th Street
New York, NY 10003
United States

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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