On agricultural commodities’ extreme price risk

Maarten R.C. van Oordt; Philip A. Stork; Casper G. de Vries

doi:10.1007/s10687-020-00401-3

On agricultural commodities’ extreme price risk

Maarten R.C. van Oordt, Philip A. Stork^*, Casper G. de Vries

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

6 Citations (Web of Science)

Abstract

We show how fat tails in agricultural commodity returns arise endogenously from productivity shocks in a standard macroeconomic model. Using nearly ninety years of data, we show that the eight agricultural commodities in our sample exhibit fat-tailed return distributions. Statistical tests confirm the heavy-tailedness of price spikes for agricultural commodities. We apply extreme value theory to estimate the size and likelihood of price spikes in agricultural commodities. Back-testing verifies the validity of our risk assessment methodology.

Original language	English
Pages (from-to)	531-563
Number of pages	33
Journal	Extremes
Volume	24
Issue number	3
DOIs	https://doi.org/10.1007/s10687-020-00401-3
Publication status	Published - Sept 2021

Bibliographical note

Funding Information:
Comments and suggestions from Alexis A. Toda, Chen Zhou, Job Swank, and Pierre M. Lafourcade are gratefully acknowledged. Maarten van Oordt is grateful for the hospitality shown by the Economics department of the Erasmus School of Economics. Views expressed do not necessarily reflect those of the Bank of Canada.

Publisher Copyright:
© 2021, The Author(s).

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10.1007/s10687-020-00401-3

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abstract = "We show how fat tails in agricultural commodity returns arise endogenously from productivity shocks in a standard macroeconomic model. Using nearly ninety years of data, we show that the eight agricultural commodities in our sample exhibit fat-tailed return distributions. Statistical tests confirm the heavy-tailedness of price spikes for agricultural commodities. We apply extreme value theory to estimate the size and likelihood of price spikes in agricultural commodities. Back-testing verifies the validity of our risk assessment methodology.",

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AU - Stork, Philip A.

AU - de Vries, Casper G.

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N2 - We show how fat tails in agricultural commodity returns arise endogenously from productivity shocks in a standard macroeconomic model. Using nearly ninety years of data, we show that the eight agricultural commodities in our sample exhibit fat-tailed return distributions. Statistical tests confirm the heavy-tailedness of price spikes for agricultural commodities. We apply extreme value theory to estimate the size and likelihood of price spikes in agricultural commodities. Back-testing verifies the validity of our risk assessment methodology.

AB - We show how fat tails in agricultural commodity returns arise endogenously from productivity shocks in a standard macroeconomic model. Using nearly ninety years of data, we show that the eight agricultural commodities in our sample exhibit fat-tailed return distributions. Statistical tests confirm the heavy-tailedness of price spikes for agricultural commodities. We apply extreme value theory to estimate the size and likelihood of price spikes in agricultural commodities. Back-testing verifies the validity of our risk assessment methodology.

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On agricultural commodities’ extreme price risk

Abstract

Bibliographical note

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