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 JournalArticleAcademicpeer-review

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 languageEnglish
Pages (from-to)531-563
JournalExtremes
Volume24
Issue number3
DOIs
Publication statusPublished - 2021

Bibliographical note

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

Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.

Funding

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.

FundersFunder number
Economics department of the Erasmus School of Economics

    Keywords

    • 60G70
    • 62G32
    • Commodity prices
    • Extreme value theory
    • Heavy tails
    • Risk management

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