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Price Volatility in Cotton

Darren Hudson and Keith Coble


 
ABSTRACT

Price volatility in the December contract of cotton was examined over the 1987-1997 period. An ARCH model was used to estimate the effects of seasonality, time-to-maturity, policy, weather, and supply and demand conditions on the variability of prices from planting to harvest. Findings indicate that there is a seasonal pattern to price volatility. Changes in farm policy do not appear to have had a significant impact, but the loan rate tends to have an inverse impact on volatility. Finally, there appears to be a non-linear relationship between the level of the futures price and price volatility.



Reprinted from Proceedings of the 1999 Beltwide Cotton Conferences pp. 328 - 334
©National Cotton Council, Memphis TN

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Document last modified Monday, Jun 21 1999