Volatility spillovers between food and energy markets: A semiparametric approach

Previous literature on volatility links between food and energy prices is scarce and mainly based on parametric approaches. This article examines these links by using a semiparametric GARCH model recently proposed by Long et al. (2011), which is essentially a nonparametric correction of the parametric conditional covariance function. The analysis focuses on price links between crude oil, ethanol and sugar prices in Brazil. Results suggest strong volatility links between the prices studied. Parametric approximations of the conditional covariance matrix may lead to misleading results that can be improved upon by using nonparametric techniques.

Research highlights► We model the links between crude oil, sugar and ethanol prices in Brazil. ► We assess both mean price behavior and volatility links. ► The semiparametric GARCH model proposed by Long et al. (2011) is used. ► We find a strong influence of crude oil and sugar prices on ethanol price behavior. ► Limited capacity of ethanol markets to alter sugar and crude oil prices is observed.