Volatility spillover from soybean oil futures to crude palm oil spot and futures: An empirical evidence

Sy, M, Li, L and Nguyen, L 2015, 'Volatility spillover from soybean oil futures to crude palm oil spot and futures: An empirical evidence', in Proceedings of the 5th Conference on Derivative Markets 2015, Auckland, New Zealand, 13-14 August 2015, pp. 1-25.


Document type: Conference Paper
Collection: Conference Papers

Title Volatility spillover from soybean oil futures to crude palm oil spot and futures: An empirical evidence
Author(s) Sy, M
Li, L
Nguyen, L
Year 2015
Conference name DERIVATIVE MARKETS 2015
Conference location Auckland, New Zealand
Conference dates 13-14 August 2015
Proceedings title Proceedings of the 5th Conference on Derivative Markets 2015
Publisher Auckland Centre for Financial Research
Place of publication Auckland, New Zealand
Start page 1
End page 25
Total pages 25
Abstract This study examines volatility spillovers from soybean oil (SO) futures market to both crude palm oil (CPO) spot and futures markets by adopting the trivariate volatility spillover model for the period of 2nd January 2004 - 31st December 2013. Time series of data are collected for Malaysia CPO spot and futures prices, and Chicago Board of Trade (CBOT) listed SO futures prices. A number of important findings are found: (1) there is a presence of a long-run equilibrium relationship between SO futures and CPO futures markets, but not between SO futures and CPO spot, and between CPO futures and CPO spot prices, (2) there is a convergence between CPO futures and CPO spot prices and a bi-directional causality exists between their prices, (3) markets seem to respond strongly to bad new rather than to good news, (4) there is a persistence in volatility for SO futures prices, and a significant volatility spillover from SO futures prices to CPO spot and futures prices, (5) volatility of CPO spot market in the current period is found to be affected by volatility of CPO futures market in the previous period, and vice versa, (6) volatilities of CPO spot and futures spillover ratios are below 20% for the period before the 2008 financial crisis; however, they go up to around 45% during the crisis period, implying a close link between peaks in volatility of SO prices and CPO spot and futures spillover ratios during the post 2008 financial crisis period, and that CPO spot and futures price volatilities are strongly affected by SO futures price volatility. Findings of the study are believed to be beneficial to policy makers, and both investors and speculators to make their strategic investment decisions from time to time.
Subjects Banking, Finance and Investment not elsewhere classified
Keyword(s) soybean oil
crude palm oil
multivariate GARCH
volatility spillovers
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