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Abstract
This paper examines the volatility of daily returns of spot prices of Arabica Coffee through
conditional variance models, also called heteroskedasticity models. The data used in the analysis
refers to the January 3, 2000 to June 15, 2012 period. The empirical results show reactions of
persistency and asymmetry in the variance of their returns, in other words, both good and bad news
differently impacts on the volatility of returns according to the EGARCH (1.1) and TARCH (1.1)
models. However, from the standpoint of performing predictions, the model that best adapted
heteroskedasticity data was EGARCH (1.1) with t - Student's distribution. The coffee market
presents strong evidence of such result, since the supply shock yields increases in price levels of the
commodity. The empirical results suggest the need of proper strategic instruments of hedging in
view of the accentuated shock persistency in Arabic Coffee price volatility returns.