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Price bubbles in agricultural commodity markets and contributing factors: evidence for corn and soybeans in China

Price bubbles in agricultural commodity markets and contributing factors: evidence for corn and... PurposeThe purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China agricultural commodity markets.Design/methodology/approachUsing recently developed rolling window right-side augmented Dickey–Fuller test, we first detect the dates of price bubbles in China's two important agricultural commodity markets, namely corn and soybeans. Then, we use a penalized maximum likelihood estimation of a multinomial logistic model to estimate the contributing factors of price bubbles in both markets, respectively.FindingsResults from the bubble detection indicate that price bubbles account for 5.48% (3.91%) of the studied periods for corn (soybeans). More importantly, we find that market liquidity and speculation have opposite effects on the occurrences of bubbles in the corn and soybeans market. World stocks-to-use and exchange rates affect the occurrences of bubbles in a different way for each commodity, as well. Price bubbles are more likely associated with strong economic activity, high interest rates and low inflation levels.Originality/valueThis is the first study considering commodity-specific features into the formation of price bubbles. Through accurately identifying the bubble dates and fixing the estimation bias of rare events models, this study enables us to obtain robust results for each commodity. The results imply that China's corn and soybeans market respond differently to the speculative activity and external shocks from international markets. Therefore, future policy regulations on commodity markets should focus on more commodity-specific factors when aiming at avoiding bubble occurrences. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Agricultural Economic Review Emerald Publishing

Price bubbles in agricultural commodity markets and contributing factors: evidence for corn and soybeans in China

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1756-137X
DOI
10.1108/CAER-10-2019-0190
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to detect the existence of price bubbles and examine the possible contributing factors that associate with price bubble occurrences in China agricultural commodity markets.Design/methodology/approachUsing recently developed rolling window right-side augmented Dickey–Fuller test, we first detect the dates of price bubbles in China's two important agricultural commodity markets, namely corn and soybeans. Then, we use a penalized maximum likelihood estimation of a multinomial logistic model to estimate the contributing factors of price bubbles in both markets, respectively.FindingsResults from the bubble detection indicate that price bubbles account for 5.48% (3.91%) of the studied periods for corn (soybeans). More importantly, we find that market liquidity and speculation have opposite effects on the occurrences of bubbles in the corn and soybeans market. World stocks-to-use and exchange rates affect the occurrences of bubbles in a different way for each commodity, as well. Price bubbles are more likely associated with strong economic activity, high interest rates and low inflation levels.Originality/valueThis is the first study considering commodity-specific features into the formation of price bubbles. Through accurately identifying the bubble dates and fixing the estimation bias of rare events models, this study enables us to obtain robust results for each commodity. The results imply that China's corn and soybeans market respond differently to the speculative activity and external shocks from international markets. Therefore, future policy regulations on commodity markets should focus on more commodity-specific factors when aiming at avoiding bubble occurrences.

Journal

China Agricultural Economic ReviewEmerald Publishing

Published: Sep 22, 2020

References

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