International Journal of Managerial Studies and Research (IJMSR)
Abstract
The great challenge for this research work is to show that the biases of investors’ behavior can affect the formation of coffee futures prices. This research work uses auto-regressive conditional heteroscedasticity (ARCH) models to analyze results that show that the volatility has an impact on the formation of coffee futures prices. The positive volatility asymmetry coefficient of the TARCH model shows the presence of the leverage effect, where negative shocks have a greater impact on the volatility of returns in coffee futures prices than positive shocks. The presence of the leverage effect includes information related with investors’ behavior which has influence on the formation of coffee futures prices and corroborates the Prospect Theory. Model results also show that investors’ reactions to bad news are statistically significant in the coffee futures market and suggest that Behavioral Finance can contribute to the understanding of the formation of coffee futures prices
