Price Volatility Transmission: Linking the U.S. Crude Oil, Corn and Plastics Markets

Policy changes and the evolution of green technology have induced new links among markets. In this research, we study a representative market system, the U.S. crude oil, corn and plastics markets affected by policies promoting corn-based energy and corn-based bioplastics production. The vector error correction model (VECM) proxies the mean equation for the ARCH process is established to study price transmission among markets in United States, especially price volatility spillover effects. We find that plastics prices and corn futures prices are moving together in the long run, but that the crude oil futures prices is weakly exogenous to this system. We also show the existence of volatility spillover from crude oil futures price to corn futures price, but not from crude oil futures price to plastics price. Moreover, after EISA 2007 taken effect, the risk spillover effects from crude oil market to corn market is greater, and the significant bidirectional volatility transmission between corn future and plastics market is established as well, which brings new challenges to stake holders on both markets and requires them to re-evaluate the risk management strategy.

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Conference Paper/ Presentation
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JEL Codes:
Q480; Q420

 Record created 2017-04-01, last modified 2019-08-29

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