Determinants of endogenous price risk in corn and wheat futures markets

This analysis evaluates determinants of price variability in U.S. corn and wheat futures markets, The analysis is conducted in two segments. In the fi rst segment, conditional heteroscedasticity models of price variability are estimated and used to examine the extent to which market conditions influe nce price variability. The second component of the analysis uses nonstructu ral vector autoregressive models to evaluate factors related to implied vol atilities calculated from options premia, Our results indicate that corn an d wheat price variability is significantly related to the ratio of use to s tocks, futures market activity, and growing conditions. In addition, import ant seasonal and autoregressive effects are revealed. Our results provide a n intuitive interpretation for GARCH and ARCH effects, which are often demo nstrated for futures price data. (C) 2000 John Wiley & Sons, Inc.