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

The role of uncertainty on agricultural futures markets momentum trading and volatility AbstractThis 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

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

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References (59)

Publisher
de Gruyter
Copyright
© 2020 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1558-3708
eISSN
1558-3708
DOI
10.1515/snde-2018-0054
Publisher site
See Article on Publisher Site

Abstract

AbstractThis 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.

Journal

Studies in Nonlinear Dynamics & Econometricsde Gruyter

Published: Jun 25, 2020

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