Volatility Spillover from Oil to Food and Agricultural Raw Material Markets
Muge Kaltalioglu, Ugur Soytas
DOI: 10.4236/me.2011.22011   PDF   HTML     5,309 Downloads   10,889 Views   Citations


The upward movement in oil and food prices in the 2000s has attracted interest in the information transmission mechanism between the two markets. This paper investigates the volatility spillover between oil, food consumption item, and agricultural raw material price indexes for the period January 1980 to April 2008. The results of the Cheung-Ng procedure show that variation in oil prices does not Granger cause the variance in food and agricultural raw material prices. Since there is no volatility spillover from oil markets to food and agricultural raw material markets, investors can benefit from risk diversification. However, there is bi-directional spillover between agricultural raw material and food markets.

Share and Cite:

M. Kaltalioglu and U. Soytas, "Volatility Spillover from Oil to Food and Agricultural Raw Material Markets," Modern Economy, Vol. 2 No. 2, 2011, pp. 71-76. doi: 10.4236/me.2011.22011.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] C. P. Timmer, “Causes of High Food Prices,” ADB Economics Working Paper Series, Asian Development Bank, Vol. 128, 2008.
[2] P. C. Abbott, C. Hurt and W. E. Tyner, “What’s Driving Food Prices?” Farm Foundation Issue Reports, July 2008. http://ageconsearch.umn.edu/bitstream/37951/2/FINAL%20WDFP%20REPORT%207-28-08.pdf
[3] Agricultural Trade Policy Analysis, “High Prices on Agricultural Commodity Markets: Situation and Prospects: A Review of Causes of High Prices and Outlook for World Agricultural Markets,” Review, European Commission, Directorate-General for Agriculture and Rural Development, Brussels, 2008.
[4] K. Collins, “The Role of Biofuels and Other Factors in Increasing Farm and Food Prices: A Review of Recent Development with a Focus on Feed Grain Markets and Market Prospects,” Supporting Material for a Review Conducted by Kraft Foods Global, Inc., 2008.
[5] W. Coyle, M. Gehlhar, T. Hertel, Z. Wnag and W. Yu, “Understanding the Determinants of Structural Change in World Food Markets,” American Journal of Agricultural Economics, Vol. 80, No. 5, 1998, pp. 1051-1061.
[6] Food and Agriculture Organization of the United States, “Soaring Food Prices: Facts, Perspectives, Impacts and Actions Required,” High-Level Conference on World Food Security: The Challenges of Climate Change and Bioenergy, Rome, 2008.
[7] J. Glauber, USDA Chief Economist, in Testimony before the Joint Economic Committee of Congress on 1 May 2008.
[8] A. Rezitis, “Mean and Volatility Spillover Effects in Greek Producer-Consumer Meat Prices,” Applied Economics Letters, Vol. 10, No. 6, 2003, pp. 381-384. doi:10.1080/1350485032000081299
[9] T. Christian and I. Rashad, “Trends in U.S. Food Prices, 1950-2007,” Economics and Human Biology, Vol. 7, No. 1, March 2009, pp. 113-120.
[10] P. Vavra and B. K. Goodwin, “Analysis of Price Trans- mission along the Food Chain,” OECD Food, Agriculture and Fisheries Working Papers, OECD Publishing, Paris, 2005.
[11] B. Minten and S. Kyle, “Retail Margins, Price Transmission and Price Asymmetry in Urban Food Markets: The Case of Kinshasa,” Journal of African Economies, Vol. 9, No. 1, 2000, pp. 1-23. doi:10.1093/jae/9.1.1
[12] M. A. Aksoy and A. Isik-Dikmelik, “Are Low Food Prices Propoor? Net Food Buyers and Sellers in Low- Income Countries,” Policy Reaseach Working Paper 4642, The World Bank, June 2008.
[13] A. Worthington, A. Kay-Spratley and H. Higgs, “Transmission of Prices and Price Volatility in Australian Electricity Spot Markets: A Multivariate GARCH Analysis,” Energy Economics, Vol. 27, No. 2, March 2005, pp. 337-350. doi:10.1016/j.eneco.2003.11.002
[14] Y. Fan, Y.-J. Zhanh, H.-T. Tsai and Y.-M. Wei, “Estimating ‘Value at R?sk’ of Crude oil Price and Its Spillover Effect Using the GED-GARCH Approach,” Energy Economics, Vol. 30, No. 6, November 2008, pp. 3156-3171. doi:10.1016/j.eneco.2008.04.002
[15] S. X. Lin and M. N. Tamvakis, “Spillover Effects in Energy Futures Markets,” Energy Economics, Vol. 23, No. 1, January 2001, pp. 43-56. doi:10.1016/S0140-9883(00)00051-7
[16] J. Baffes, “Oil Spills on Other Commodities,” Resources Policy, Vol. 32, No. 3, September 2007, pp. 126-34. doi:10.1016/j.resourpol.2007.08.004
[17] B. T. Ewing and M. A. Thompson, “Dynamic Cyclical Comovements of Oil Prices with Industrial Production, Consumer Prices, Unemployment, and Stock Prices,” Energy Policy, Vol. 35, No. 11, November 2007, pp. 5535-5540. doi:10.1016/j.enpol.2007.05.018
[18] H. Askari and N. Krichene, “Oil Price Dynamics,” Energy Economics, Vol. 30, No. 5, 2008, pp. 2134-2153.
[19] D. A. Dickey and W. A. Fuller, “Distribution of Estimators for Time Series Regressions with a Unit Root,” Journal of the American Statistical Association, Vol. 74, No. 366, June 1979, pp. 427-431. doi:10.2307/2286348
[20] G. Elliott, T. J. Rothenberg and J. H. Stock, “Efficient Tests for an Autoregressive Unit Root,” Econometrica, Vol. 64, No. 4, July 1996, pp. 813-836. doi:10.2307/2171846
[21] P. C. Phillips and P. Perron, “Testing for a Unit Root in Time Series Regression,” Biometrika, Vol, 75, No. 2, 1988, pp. 335-346. doi:10.1093/biomet/75.2.335
[22] D. Kwiatkowski, P. C. B. Phillips, P. Schmidt and Y. Shin, “Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root,” Journal of Econometrics, Vol. 54, No. 1-3, October-December 1992; pp. 159-178. doi:10.1016/0304-4076(92)90104-Y
[23] N. G. Serena and P. Pierre, “A Note on the Selection of Time Series Models,” Boston College Working Papers in Economics 500, 2001.
[24] Y. Cheung and L. K. Ng, “A Causality-in-Variance Test and Its Application to Financial Market Prices,” Journal of Econometrics, Vol. 72, No. 1-2, May-June 1996, pp. 33-48. doi:10.1016/0304-4076(94)01714-X
[25] D. F. Larson, P. Varangis and N. Yabuki, “Commodity Risk Management and Development,” World Bank Policy Research Paper No. 1963, April 1998.

Copyright © 2022 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.