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European Review of Agriculture Economics Vol 28 (3) (2001) pp.307-328
© 2001 Oxford University Press and the Foundation for the European Review of Agricultural Economics

The effects of dollar/sterling exchange rate volatility on futures markets for coffee and cocoa

Adusei Jumah and Robert M. Kunst

Institute for Advanced Studies and Austrian National Bank, Vienna, Austria
Institute for Advanced Studies and University of Vienna, Vienna, Austria

Summary

The paper uses multivariate autoregressive conditional heteroscedasticity models to investigate the effect of dollar/sterling exchange rate fluctuations on coffee and cocoa futures prices on the London LIFFE and the New York CSCE. For both commodities and in both markets, the exchange rate emerges as a main source of risk for the commodity futures price. We find that the commodities show similarities not only in their long-run features and first-order shock propagation, but also in their characteristics of volatility propagation.

Keywords: commodity markets, multivariate ARCH models, exchange rates, volatility


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