Does corn market uncertainty impact the US ethanol prices?

Bouri

2018

Self Cite

The production of ethanol has increased globally over the last decade. It is mainly produced from corn and sugarcane, so earlier studies mainly investigated the impact of food prices on ethanol prices. Although biofuels have been brought into the energy markets to reduce the volume of carbon emissions, the links between ethanol and carbon emission markets have not been explored sufficiently in the existing literature. This study aimed to extend the literature in this field by using a GARCH‐jump process to examine whether Brazilian ethanol prices are affected by carbon emission prices. Our key findings are threefold. First, carbon emission prices affect Brazilian ethanol prices positively. Rising emission prices would therefore cause an increase in the ethanol price. Second, time‐varying jumps occur in the ethanol price index. Third, the impact of emission prices on the ethanol market is asymmetric, implying that increases and decreases in emission prices would have heterogeneous effects on ethanol price levels. Our findings have important implications for scholars, investors, and policymakers. © 2018 Society of Chemical Industry and John Wiley & Sons, Ltd

“…Our results, notably, are in line with earlier studies . These authors also document the evidence of significant jumps phenomena in energy and biofuel markets.…”

Section: Resultssupporting

confidence: 93%

Section: Introductionmentioning

confidence: 84%

Carbon emission and ethanol markets: evidence from Brazil

Bouri

2018

Self Cite

“…It can be thus concluded that oil price volatility has emerged as a driving force of US ethanol price changes. The findings of this empirical research are in line with previous studies, which also show that the US ethanol prices are driven by crude oil volatility and that oil volatility has a positive impact on US ethanol returns …”

Section: Resultssupporting

confidence: 91%

“…More specifically, previous researchers claim that biofuels have been brought into the energy markets as a substitute for fossil fuels in order to mitigate the volume of carbon emissions and minimize the adverse impact of oil price uncertainty . Given that oil market risk emerges as one of the driving forces of the ethanol market price changes, several researchers have investigated the effect of oil prices on the US ethanol markets …”

Section: Introductionmentioning

confidence: 99%

Asymmetric impact of oil market uncertainty on the US biofuel industry

2018

Self Cite

Literature has shown that crude oil prices have a significant impact on the global biofuel industry. However, previous researchers have investigated the link between fossil fuel and biofuel employing a linear framework, although energy price indexes are often nonlinear and asymmetric in nature. The present study examines whether the effect of oil‐price uncertainty on US ethanol market volatility is asymmetric. This work differs from earlier studies in that, unlike the existing literature, it considers the information content of the crude oil volatility index (OVX) as the indicator of oil market uncertainty. Methodologically, an extended EGARCH process has been employed to examine the asymmetric linkage. The findings suggest that the crude oil market creates volatility in the US ethanol industry. More specifically, ethanol volatility is negatively affected by oil volatility implying that an increase in oil volatility results in a decrease in ethanol volatility. The results also show that the impact of oil market uncertainty on the US ethanol industry is asymmetric indicating that the biofuel prices react differently to the rise and fall in crude oil volatility index. The findings further suggest that including OVX in the EGARCH process improves the volatility forecasts of the US ethanol price index. © 2018 Society of Chemical Industry and John Wiley & Sons, Ltd

“…As far as we are aware, we are the first to examine whether the information content of the CIV index is convenient for predicting the realized volatility of the US ethanol market. However, a recent study used the CIV index to investigate whether corn volatility affected US ethanol market returns, whereas the current study examines the connections between the realized volatility of ethanol returns and the implied volatilities of the corn market. This study also examines the predictive capability of the CIV index.…”

Section: Introductionmentioning

confidence: 99%

Forecasting ethanol market volatility: new evidence from the corn implied volatility index

2018

Self Cite

Global ethanol production has expanded significantly in recent years as a result of a sharp rise in the worldwide crude oil price. Currently, the USA is the leading producer and exporter of ethanol fuel globally and hence fluctuations in ethanol price could play a vital role in influencing the country's overall bioenergy policy. It is hence important to model and forecast the US ethanol price precisely to minimize the market risk. Surprisingly, this issue has not received considerable attention in the biofuel and bioenergy literature. To rectify this situation, the present study aims to model and predict US ethanol market volatility using the recently published corn price implied volatility (CIV) index. Employing a set of generalized autoregressive conditional heteroskedasticity (GARCH) volatility approaches, we show that the information content of CIV index is a significant factor in explaining the variation in the ethanol price. The inclusion of the CIV index also generally improves the volatility forecasts of the US ethanol price index. © 2018 Society of Chemical Industry and John Wiley & Sons, Ltd