Market Institutions and Price Relationships: The Case of Coffee in the Ethiopian Commodity Exchange

Abstract

While the Ethiopian Commodity Exchange (ECX) is widely considered a successful market institution, very little rigorous empirical investigation has been done on it. This paper contributes to filling this knowledge gap. Using a unique set of spatially disaggregated prices for five different coffee varieties, we examine how the ECX has influenced the dynamics of international and domestic prices for coffee, the largest traded commodity in terms of trade value on the exchange floor. We follow a multivariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) approach to assess the extent of market interdependence (conditional correlations) and volatility transmission. We also evaluate structural changes in price dynamics over time. Our results suggest that, contrary to popular media stories, the ECX's success in strengthening coffee price relationships has been limited. We discuss the underlying reasons and implications of this finding.

Return and volatility transmission between China's and international crude oil futures markets: A first look

“…While a few studies (e.g., Kristoufek, 2014; Wang, Wu, & Yang, 2008) have investigated the asymmetric volatility on major international oil futures markets, little has been done on Chinese and Oman crude oil futures markets. Furthermore, despite recent studies using the Dynamic Conditional Correlation (DCC) model (Engle, 2002) to explore correlation dynamics in crude oil and other commodity futures literature (e.g., Chang, AcAleer, & Tansuchat, 2011; Hernandez, Ashid, Lemma, & Kuma, 2017), little research has been done to explore the asymmetry in conditional correlations on international oil futures markets linkages in particular, and international commodity futures linkages in general. In this paper, we simultaneously exploit both the asymmetry in volatility and in correlations among the four crude oil futures markets under consideration.…”

Impacts of Institutional Intervention on Price Transmissions: The Case of the Ethiopian Commodity Exchange

“…The primary aim of the sweeping intervention made by ECX was to benefit, according to FAO (), more than 4 million smallholder coffee producers. Although ECX is widely credited as it revolutionized agricultural markets (Hernandez et al., ; Andersson et al., ; Mbeng‐Mezui et al., ; UNCTAD, ; and the media) and benefited farmers (Gabre‐Madhin, ), we found that its impacts in improving the performance of markets in transmitting prices was quite limited. Our results also support the findings of Hernandez et al.…”

“…() and Hernandez et al. () also analyzed impacts of ECX; the former on spatial price dispersion and the latter on market interdependence and volatility transmission. Our study, however, not only assesses impacts on APT, it also uses superior data.…”

Evolving food systems in Ethiopia: Past, present and future

“…All trade was centralized and sold through an auction system in Addis Ababa. While ECX has had important impacts on the structure of value chains, it, however, appears not to have led to important improvements in performance (Hernandez et al 2017). The ECX is only involved in trade in export crops.…”