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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce


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Volume 24 (2020)

The role of uncertainty on agricultural futures markets momentum trading and volatility

Robert L. CzudajORCID iD: https://orcid.org/0000-0002-3313-8204
Published Online: 2019-07-20 | DOI: https://doi.org/10.1515/snde-2018-0054

Abstract

This paper sheds light on the role of different sources of uncertainty on agricultural futures markets momentum trading and volatility. Momentum trading is proxied by two technical analysis indicators – the moving average convergence divergence and the relative strength index – while we also consider two different concepts of uncertainty – the CBOE volatility index of the S&P500 and daily news about the stance of economic policy in the US. To capture different effects on the transmission mechanism of uncertainty shocks, we implement a Bayesian VAR approach, which accounts for time-variation in the coefficients and the variance covariance structure of the model’s innovations. The results point in favor of a time-dependent uncertainty effect on expectations of daily momentum traders in agricultural futures markets. The corresponding trades in these periods push futures prices upwards and downwards and result in an increased volatility. Direct effects of both uncertainty sources on the volatility of agricultural futures markets confirm this view.

This article offers supplementary material which is provided at the end of the article.

Keywords: agricultural futures markets; momentum trading; time-varying Bayesian VAR; uncertainty; volatility

JEL Classification: C32; G13; Q14

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Published Online: 2019-07-20


Citation Information: Studies in Nonlinear Dynamics & Econometrics, 20180054, ISSN (Online) 1558-3708, DOI: https://doi.org/10.1515/snde-2018-0054.

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