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Non-linear dynamics in futures prices: evidence from the coffee, sugar and cocoa exchange

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  • B. Adrangi
  • A. Chatrath

Abstract

This article tests for the presence of low-dimensional chaos in the coffee, cocoa and sugar futures markets. While it finds strong evidence of non-linear dependence in the returns, the evidence is not consistent with chaos. The test results indicate that well known ARCH-type processes, with control for seasonal and contract-maturity effects, generally explain the non-linearities in the data. It also shows that employing seasonally adjusted price series and controlling for contract maturity may be important in obtaining robust results via some of the existing tests for chaotic structure. Finally, maximum likelihood methodologies that are robust to the non-linear dynamics lend strong support to the Samuelson hypothesis of maturity-effects in futures price-changes.

Suggested Citation

  • B. Adrangi & A. Chatrath, 2003. "Non-linear dynamics in futures prices: evidence from the coffee, sugar and cocoa exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 13(4), pages 245-256.
    • Handle: RePEc:taf:apfiec:v:13:y:2003:i:4:p:245-256
    DOI: 10.1080/09603100110115660
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    1. Blake LeBaron, "undated". "Technical Trading Rules and Regime Shifts in Foreign Exchange," Working papers _007, University of Wisconsin - Madison.
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    Cited by:

    1. Wang, Nanying & Houston, Jack, 2015. "The Comovement between Non-GM and GM Soybean Price in China: Evidence from Dalian Futures Market," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196775, Southern Agricultural Economics Association.
    2. Li, Xiaoliang & Li, Bo & Liu, Li, 2023. "Stability and dynamic behaviors of a limited monopoly with a gradient adjustment mechanism," Chaos, Solitons & Fractals, Elsevier, vol. 168(C).
    3. Björn Lutz, 2010. "Pricing of Derivatives on Mean-Reverting Assets," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-02909-7, October.
    4. Wang, Nanying & Houston, Jack E., 2015. "The Co-movement between Non-GM and GM Soybean Price in China: Evidence from China Futures Market," 2015 Conference, August 9-14, 2015, Milan, Italy 211914, International Association of Agricultural Economists.
    5. Stavros Degiannakis & Evdokia Xekalaki, 2007. "Assessing the performance of a prediction error criterion model selection algorithm in the context of ARCH models," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 149-171.
    6. Nanying Wang & Jack E. Houston, 2016. "The Co-Movement between Non-GM and GM Soybean Prices in China: Evidence from Dalian Futures Market (2004-2014)," Applied Economics and Finance, Redfame publishing, vol. 3(4), pages 37-47, November.
    7. Riza Emekter & Benjamas Jirasakuldech & Peter Went, 2012. "Rational speculative bubbles and commodities markets: application of duration dependence test," Applied Financial Economics, Taylor & Francis Journals, vol. 22(7), pages 581-596, April.
    8. Salisu, Afees A. & Adediran, Idris A. & Oloko, Tirimisiyu O. & Ohemeng, William, 2020. "The heterogeneous behaviour of the inflation hedging property of cocoa," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    9. Christophe Gouel, 2012. "Agricultural Price Instability: A Survey Of Competing Explanations And Remedies," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 129-156, February.
    10. Huffaker, R. & Canavari, M. & Muñoz-Carpena, R., 2018. "Distinguishing between endogenous and exogenous price volatility in food security assessment: An empirical nonlinear dynamics approach," Agricultural Systems, Elsevier, vol. 160(C), pages 98-109.

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