Have food and financial markets integrated?

This article analyses comovements and discusses possibly greater market integration between aggregate food commodity and stock prices in the period 1990 to 2012. Return correlations, price return distributions, cointegration and Granger-causalities are tested in subsamples on monthly FAO Food Price Index and MSCI World Stock Market Index. Empirical results suggest that while there is only weak indication of greater comovements concurrent with structural changes such as changed agricultural policies, new demand due to growth in emerging markets and energy mandates and the financialization of food markets since the early 2000s, they did start to increase substantially in particular during the financial stress of the Lehman crisis and the Great Recession. While structural changes may have amplified price linkages across markets, results do not suggest that they are the key factors for greater price comovements. Instead, the effects of the late-2000s recession as a time of great economic weakness and uncertainty may have changed concurrently the behaviour of both food and financial market participants, such that different market prices exhibit large comovements.     

Art as an investment: Short and long-term comovements in major painting markets

This paper examines the short and long-term price linkages among major art and equity markets over the period 1976–2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19^th Century European, Old Masters, Surrealists, 20^th Century English and Modern US paintings. A global equity index (with dividends and capitalisation changes) is also included. Multivariate cointegration procedures, Granger non-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to analyse short and long-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant short and long run causal linkages between the various painting markets and between the equity market and painting markets. However, in terms of the percentage of variance explained most painting markets are relatively isolated, and other painting markets are generally more important than the equity market in explaining the variance that is not caused by innovations in the market itself. This suggests that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, though in common with the literature in this area the study finds that the returns on paintings are much lower and the risks much higher than in conventional financial markets.The authors would like to thank delegates to the 14th Australasian Finance and Banking Conference, University of New South Wales, seminar participants at the Queensland University of Technology and Massey University, Masaki Katsuura, and two anonymous referees for helpful comments on earlier versions of this paper. The financial assistance of a Queensland University of Technology, Faculty of Business Research Initiative Grant is also gratefully acknowledged.     

Cointegration and spatial price transmission among wheat and wheat-flour markets in Afghanistan

This article examines cointegration and spatial price transmission among Afghan wheat and flour markets as well as their linkages with those of supplier countries and global markets. Unit root tests, consistent momentum threshold autoregressive (M-TAR) models and vector error correction models (asymmetric and symmetric) are employed to achieve research objectives. The results suggest that provincial wheat and flour markets may have a long-run relationship with principal market of Kabul. Afghan wheat and flour markets may also be cointegrated with their respective global, Kazakh and Pakistani markets. While provincial wheat markets might adjust to divergence from their long-run equilibrium with Kabul wheat market, some of the provincial flour markets may not respond to deviation from their long-run equilibrium with Kabul flour market. The speed of adjustment towards the long-run Afghan–Pakistani and Afghan–Kazakh equilibrium may be faster for Afghan flour than wheat markets. The equilibrium adjustment coefficients are generally small and market imperfections may exist, however. A shock in Kabul wheat and flour markets may have long-lasting effect on the respective provincial markets whereas a shock in global wheat and Pakistani, and Kazakh wheat and flour markets might have transitory effect on the corresponding Afghan markets.     

International timber markets and tropical deforestation: the evidence from prices

Some scholars suggest that global timber markets, especially those involving high value species, are a leading cause of tropical deforestation. Despite limited empirical evidence, this hypothesis rests on the assumption that global timber markets respond to a common equilibrating mechanism that provides strong enough incentives for loggers in the tropical regions of the world. This article develops a simple model and taps into a unique data set on timber prices of hardwood and softwood in leading markets to test the global timber markets hypothesis. While we find evidence of a global equilibrating mechanism with potentially significant economic incentives to affect tropical deforestation, our results do not endorse the common conjecture in the literature that timber price shocks in developed countries lead to a homogeneous response in terms of deforestation everywhere in the tropical world. Instead, they invite further development of structural global timber market models to assess the linkages between markets and the consequences of such linkages to deforestation.     

How pervasive is the effect of culture on stock market linkages? Evidence across regions and economic cycles

We conduct a comprehensive study on the effect of culture on stock market linkages. With data on 25 national stock markets, a quantile regression model is used to estimate the determinants of market linkages using culture variable/s such as language, religion and Hofstede’s cultural dimensions while controlling for distance, economic and legal variables. Further, we test whether these effects hold across regions and if changes are detected during periods of market crisis. We also test if market liquidity, an indicator of market efficiency, diminishes the impact of culture on market linkages. The main conclusion is that culture preferences shape investor choices, which affects integration between stock markets. The equity markets with similar cultural traits tend to increase market linkages; however, we observe differences across regions. Furthermore, liquidity and economic uncertainty fail to have an impact on the significance of culture variable/s as determinants of market linkages.     

Information,Pricing and Efficiency in Cash and Futures Markets: The Case of Hogs

The price leadership roles among hog cash and futures markets are assessed to locate points of price discovery and to examine flows of information among these markets. Several years of data are analyzed using lead/lag causality analysis and strength of linear causality measures. Although significant instantaneous relationships exist among hog cash and futures markets, one-way causality tests indicate that generally the futures market dominates cash hog markets in the price discovery process.     

Cointegration networks in stock markets

We use a novel approach based on a combination of network and cointegration analysis to examine linkages between stock markets across market cycles. Our results show that long-run linkages are likely to be global rather than regional and that market turbulence increases linkages. However, we find no widespread common stochastic trends between markets and neither are we able to draw a conclusion that major financial markets display influences network linkages.     

Identification of strategies to improve goat marketing in the lowlands of Ethiopia: a hedonic price analysis

This article aims at identifying factors that determine market prices of goats and analyse potential mechanisms by which smallholder goat producers could maximize their benefits. Data on 357 farm households and 2103 goat transactions were collected in three major goat markets in the lowlands of Ethiopia. Hedonic price models adjusted for heteroscedasticity were employed to analyse the observed price data. Model results showed the relative importance of different factors in determining goat prices. Animal attributes including age, sex, live weight, body condition and presence of horn as well as types of buyer and market outlet targeted and time of selling were found to be important. Particularly, goats marketed during festive periods where demand for meat increases (e.g. Ethiopian New Year) command higher prices. These results imply that interventions such as systematic selection schemes targeting traits demanded by the market, improved linkages to markets, easy access to market information systems and creating conducive environment including incentive mechanisms can enhance smallholder farmers’ and pastoralists’ ability to take advantage of seasonal and spatial price changes and become market responsive with effective marketing strategies. Such changes can be potent in improving the livelihoods of smallholder farmers and pastoralists.     

A spatial–temporal analysis of East Asian equity market linkages

This paper examines East Asian equity market linkages in and out of the Asian and global financial crises using a novel econometric approach. The market dependence structure and shock transmission mechanism are explored spatially in the time domain, thus offering new insights into the dynamic regional market linkage patterns. Results show that East Asian equity markets are characterized by linkages through significant spatial effects, crises are conducive to increased cross-border linkages especially in the case of China, and Japan is a dominant driver of market linkages in the region.     

A history of European electricity day-ahead prices

In this article, we examine the development of day-ahead prices in five European markets which became more connected over recent years. Where previous studies examined the convergence of price levels over time, we focus on patterns in estimates for the parameters in a switching regimes model. This makes it possible to distinguish between prices under normal market conditions and under non-normal market conditions, those market conditions that can cause extreme price spikes. We expect that increased connectivity yields additional supply in the short-term and therefore will reduce the impact of price spikes. Our results indicate that the impact of price spikes and volatility decreased over time, that prices behave more random, and that the parameter estimates between various connected markets seem to have converged between the Belgian, Dutch, French, German and Nordic day-ahead markets over the years 2003 through 2010. These results can be explained by increased connectivity and improved liquidity.     

Structural change and international stock market interdependence: Evidence from Asian emerging markets

This study investigates the evolving pattern of the interdependence among selected Asian emerging markets and three major stock markets (Japan, UK and US). Using rolling cointegration methods and the recently developed algorithms of inductive causation, we found that time-varying cointegration relationships exist among these stock markets. The results indicate that the wave of financial liberalization policies in the early 1990s led to a significant increase in market linkages which was later weakened during the 1997 Asian financial crisis. Furthermore, the data indicate that Japan and the US have the greatest influence on the emerging markets while the influence of Singapore and Thailand has increased since the Asian financial crisis.     

期货市场与现货市场之间的价格研究--中国农产品市场的经验

本文借助于信息共享模型与波动溢出效应模型对我国大豆和小麦的期、现货市场之间的价格发现进行了多层次的实证研究,定量描述了期、现货市场在价格发现中作用的大小,深入刻画了我国农产品期、现货市场之间的动态关系.研究结果显示:大豆期、现货价格之间存在双向引导关系,小麦仅存在期货对现货的单向引导关系;期、现货市场均扮演着重要的价格发现角色,且期货市场在价格发现中处于主导地位;期、现货市场之间均存在双向波动溢出关系,但现货市场来自期货市场的波动溢出效应均强于期货市场来自现货市场的波动溢出效应;并且,随着期货市场的发展,期、现货市场之间的波动溢出程度均呈逐渐增强态势.     

Revisiting the shock and volatility transmissions among GCC stock and oil markets: A further investigation

The paper explores the empirical evidence of the volatility interactions among the Gulf Cooperation Council (GCC) stock markets and world oil price over the weekly period spanning from June 24, 2005 to March 25, 2011. The study is conducted based on the BEKK-GARCH process developed by Kroner and Ng (1998) and outlining the asymmetry in the conditional variances of the stock and oil markets. The findings show evidence of shock and volatility linkages among GCC stock and oil markets, and reveal that the spillover effects are more apparent for volatility patterns. They also indicate that the stock and oil markets exhibit asymmetry in the conditional variances. From the perspective of portfolio strategies, the results display certain sensitivity to the GCC stock prices, allowing thus better understanding of the relationship between each stock market and oil price. Our findings are crucial for practitioners, policy makers and investors who seek to make earnings by diversifying their portfolios.     

A REVISIT OF INTERNATIONAL STOCK MARKET LINKAGES: NEW EVIDENCE FROM RANK TESTS FOR NONLINEAR COINTEGRATION

Based on a theory proposed for the possible link between financial market integration and nonlinear cointegration, this study reinvestigates international stock market linkages by performing both conventional linear cointegration tests and newly developed rank tests for nonlinear cointegration. The stock price indexes of Australia, Japan, New Zealand, the United Kingdom and the United States are used, with daily data spanning from 29 May 1992 to 10 April 2001. Much more evidence of market integration emerges from nonlinear than linear cointegration analysis, suggesting that comovements among various national stock markets may well take nonlinear forms. Our findings challenge the conclusion of market segmentation reached in some previous studies that only conducted linear cointegration analysis.     

Financial contagion and volatility spillover: An exploration into Indian commodity derivative market

This study measures the extent of financial contagion in the Indian asset markets. In specific it shows the contagion in Indian commodity derivative market vis-à-vis bond, foreign exchange, gold, and stock markets. Subsequently, directional volatility spillover among these asset markets, have been examined. Applying DCC-MGARCH method on daily return of commodity future price index and other asset markets for the period 2006–16, time varying correlation between commodity and other assets are estimated. The degree of financial contagion in commodity derivative market is found to be the largest with stock market and least with the gold market. A generalized VAR based volatility spillover estimation shows that commodity and stock markets are net transmitters of volatility while bond, foreign exchange and gold markets are the net receivers of volatility. Volatility is transmitted to commodity market only from the stock market. Such volatility spillover is found to have time varying nature, showing higher volatility spillover during the Global Financial Crisis and during the period of large rupee depreciation in 2013–14. These results have significant implication for optimal portfolio choice.     

Price transmission in the international skim milk powder markets

This article investigates the strength and the pattern of spatial price linkages in skimmed milk powder markets using monthly wholesale price data from three major producers and exporters (the U.S.A., the E.U., and Oceania) and the nonlinear autoregressive distributed lag model. The results suggest that prices in the three regions considered are linked with stable long-run relationships. The law of one price, however, does not hold. The dominant pattern of transmission in the long run is asymmetric involving positive price stocks to be transmitted with higher intensity compared to negative prices shocks; asymmetries in price transmission exist in the short run as well.     

我国畜产品价格波动分析——基于ARCH类模型

运用ARCH类模型对我国主要畜产品的价格波动率进行了分析。结果表明:牛肉、羊肉和鸡肉的价格波动具有显著的波动积聚性,鸡蛋价格波动没有显著的异方差效应;除牛肉市场外,羊肉和鸡肉市场不具有高风险、高回报的特征;猪肉、牛肉、羊肉和鸡肉的价格波动没有非对称性。认为应在畜产品市场出现大的价格波动时及时采取平抑措施,且政府需规范畜产品市场秩序、完善畜产品市场制度。     

The multi-market analysis of a housing price transmission model

In this article, we examine dynamic relationships among housing prices from four first-tier cities in China from December 2000 to May 2010 and present an equilibrium model of housing price in multi-markets. By explicitly incorporating and modelling endogenous price series in competing housing markets, our empirical model is able to capture the existence of long-run equilibrium relationships and important short-run dynamics and price structures such as price leadership, price transmission lag and asymmetric price responses. Such multi-market analysis has generalized implications and can easily be applied to analyse the pricing dynamics among other real estate markets in the world. Our major contribution lies in two aspects. First, we employ an Error-Correction Model (ECM) with Directed Acyclic Graphs (DAG) to study the price dynamics in the four largest and key housing markets in China. Second, we uncover a price transmission among these housing markets in China and provide an insightful understanding of price adjustment across markets. The revealed effective price transmission and high correlation among these different markets actually is not a good thing for a stable financial system and for the defence against price bubbles in the housing market.     

Dynamics of fine wine and asset prices: evidence from short- and long-run co-movements

This article examines short- and long-term price linkages among the majority of fine wine and equity markets over the period of 2003 to 2012. We do not consider the price index (LIV-EX 100 or 500), as is typically undertaken in previous studies, but rather examine the auction price series of the world’s most traded wine-vintage pairs (5 Bordeaux first growth, 8 Bordeaux second growth, 5 Burgundy, 3 Rhone, 4 Italian, 5 Californian, 1 Australian and 1 Portuguese). A global equity index is also included using the Morgan Stanley Capital International World. Cointegration procedures, the Granger non-causality test, and ECM are used to analyse short- and long-run relationships among these markets. The results indicate a strong effect of financial markets on wine prices and short-term causality for certain wines. Moreover, the findings indicate short-run causality between the wines themselves, revealing a leader (exogenous) or follower (endogenous) status of certain fine wines in price dynamics, and also long-run causality for endogenous wines. This approach is relevant to portfolio diversification strategies and allows price movements to be anticipated more accurately than using an index approach.