Evolving Relationship between Oil and Corn under Structural Changes
Public Deposited- Last Modified
- February 26, 2019
- Creator
-
Tian, Zijun
- Affiliation: College of Arts and Sciences, Department of Economics
- Abstract
- This paper focuses on the better estimation of the correlation between oil and corn with Realized Beta GARCH model, the first moment Granger Causality test on the prices of oil and corn, and the second moment causality test on the volatilities and returns of oil and corn. Since the past decade has witnessed the ever-fast development in biofuel production and increasing volatilities in the markets, I further perform Bai and Perron Procedure to detect possible structural breaks from 2004 to 2014 and use impulse response functions to help draw insight into the changing causal relationships in the price levels. I find that the correlation between oil and corn nearly doubled during the financial crisis and then resumes back to the normal level about 0.2. However, the statistically significant causal relationship from oil prices to corn prices detected in the prior crisis period cannot be found later as a result of higher volatilities and nonexistent arbitrage. The second moment causality test on the volatilities confirms our hypothesis that knowing the information on the returns of oil at time t can help predict the volatilities of corn at time t+1.
- Date of publication
- spring 2017
- Keyword
- DOI
- Resource type
- Rights statement
- In Copyright
- Note
- Funding: None
- Advisor
- Peter, Klara
- Degree
- Bachelor of Science
- Academic concentration
- Economics
- Honors level
- Honors
- Degree granting institution
- University of North Carolina at Chapel Hill
- Graduation year
- 2017
- Language
- English
Relations
- Parents:
This work has no parents.
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