Volatility transmission in agricultural futures markets

After the huge rise and fall of agricultural commodity spot and futures prices between 2007 and 2008, the potential reasons for and the impact of the strong rise in volatility provoked an intensive debate in the media as well as in the academic literature. However, owing to the increasing interdependence of global markets, an isolated examination of single futures markets does not seem to be appropriate. Therefore, the aim of this study is to investigate the volatility spillover between various agricultural futures markets from a new perspective. To do this, we use data for the prices of first nearby futures contracts for corn, cotton, and wheat and estimate GARCH-in-mean VAR models in the tradition of Elder (2003). Our results provide evidence in favor of an existing short-run volatility transmission process in agricultural futures markets.