Location of Repository

"Modelling Conditional Correlations in the Volatility of Asian Rubber Spot and Futures Returns"

By Tanchanok Khamkaew, Roengchai Tansuchat, Chia-Lin Chang and Michael McAleer

Abstract

Asia is presently the most important market for the production and consumption of natural rubber. World prices of rubber are not only subject to changes in demand, but also to speculation regarding future markets. Japan and Singapore are the major futures markets for rubber, while Thailand is one of the world's largest producers of rubber. As rubber prices are influenced by external markets, it is important to analyse the relationship between the relevant markets in Thailand, Japan and Singapore. The analysis is conducted using several alternative multivariate GARCH models. The empirical results indicate that the constant conditional correlations arising from the CCC model of Bollerslev (1990) lie in the low to medium range. The results from the VARMA-GARCH model of Ling and McAleer (2003) and the VARMA-AGARCH model of McAleer et al. (2009) suggest the presence of volatility spillovers and asymmetric effects of positive and negative return shocks on conditional volatility. Finally, the DCC model of Engle (2002) suggests that the conditional correlations can vary dramatically over time. In general, the dynamic conditional correlations in rubber spot and futures returns shocks can be independent or interdependent.

OAI identifier:

Suggested articles

Preview

Citations

  1. (2003). Asymptotic theory for a vector ARMA-GARCH model,
  2. (2005). Automated inference and learning in modeling financial volatility,
  3. (2002). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models,
  4. (2003). Food price volatility and macroeconomic factor volatility: “Heat waves” or “meteor showers”?,
  5. (1990). Modelling the coherence in short-run nominal exchange rate: A multivariate generalized ARCH approach,
  6. (1992). Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances,
  7. (2005). Realized volatility and correlation in grain futures markets: Testing for spill-over effects, Monash Econometrics and Business Statistics Working Papers 22/05,
  8. (2003). Spillover effects in the Malaysian palm oil futures and cash markets.
  9. (2009). Structure and asymptotic theory for multivariate asymmetric conditional volatility,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.