trends in time allocation a cross country analysis abstract using detailed time use data for seven industrialized countries from the 1970s until today we document general decreases in men s market work coupled with increases in men s unpaid work and child care and increases in women s paid work and child care coupled with decreases in unpaid work we also find almost universal increases in the time devoted to watching television over this period and uncover a widespread increase in leisure inequality in favor of lower educated adults trends in leisure inequality mirror the general increase in income and earnings inequality experienced in most countries over this period especially after the mid 1980s all these findings are consistent with previous results for the us however in contrast to the increases in leisure found for the us we fail to find common trends in leisure time across countries over the period analyzed

the economics of a blend mandate for biofuels a biofuel blend mandate may increase or decrease consumer fuel prices with endogenous oil prices depending on relative supply elasticities biofuel tax credits always reduce fuel prices tax credits result in lower fuel prices than under a mandate for the same level of biofuel production if tax credits are implemented alongside mandates then tax credits subsidize fuel consumption instead of biofuels this contradicts energy policy goals by increasing oil dependency co 2 emissions and traffic congestion while providing little benefit to either corn or ethanol producers these social costs will be substantial with tax credits costing taxpayers 28 7 billion annually by 2022 copyright 2008 oxford university press

oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases this paper analyzes the effect of volatility in oil prices on the degree of asymmetry in the response of gasoline prices to oil price increases and decreases several time series measures of the asymmetry between the responses of gasoline prices to oil price increases and decreases and several measures of the oil price volatility are constructed in all models the degree of asymmetry in gasoline prices declines with an increase in oil price volatility the results support the oligopolistic coordination theory as a likely explanation of the observed asymmetry and are not consistent with the standard search theory and the search theory with bayesian updating

correlations between biofuels and related commodities before and during the food crisis a taxonomy perspective abstract in this paper we analyze the relationships between the prices of biodiesel ethanol and related fuels and agricultural commodities with a use of minimal spanning trees and hierarchical trees to distinguish between short term and medium term effects we construct these trees for different frequencies weekly and monthly we find that in short term both ethanol and biodiesel are very weakly connected with the other commodities in medium term the biofuels network becomes more structured the system splits into two well separated branches a fuels part and a food part biodiesel tends to the fuels branch and ethanol to the food branch when the periods before and after the food crisis of 2007 2008 are compared the connections are much stronger for the post crisis period this is the first application of this methodology on the biofuel systems

bayesian estimation and selection of nonlinear vector error correction models the case of the sugar ethanol oil nexus in brazil nonlinear adjustment toward long run price equilibrium relationships in the sugar ethanol oil nexus in brazil is examined we develop generalized bivariate error correction models that allow for cointegration between sugar ethanol and oil prices where dynamic adjustments are potentially nonlinear functions of the disequilibrium errors a range of models are estimated using bayesian monte carlo markov chain algorithms and compared using bayesian model selection methods the results suggest that the long run drivers of brazilian sugar prices are oil prices and that there are nonlinearities in the adjustment processes of sugar and ethanol prices to oil price but linear adjustment between ethanol and sugar prices

how does increased corn ethanol production affect us natural gas prices abstract in recent years there has been a push to increase biofuel production in the united states the biofuel of choice so far has been ethanol produced from corn the effects of increased corn ethanol production on the consumer prices of food and energy continue to be studied and debated this study examines in particular the effects of increased corn ethanol production on us natural gas prices a structural model of the natural gas market is developed and estimated using two stage least squares a baseline projection for the period 2007 2018 is determined and two scenarios are simulated in the first scenario current biofuel policies including eisa mandates tariffs and tax credits are removed in the second scenario we hold ethanol production to the level required only for largely obligatory additive use the results indicate that the increased level of corn ethanol production occurring as a result of the current us biofuel policies may lead to natural gas prices that are as much as 0 25 higher on average than if no biofuel policies were in place a similar comparison between the baseline and second scenario indicates natural gas prices could be as much as 0 5 higher on average for the same period

value at risk estimation with the optimal dynamic biofuel portfolio abstract in the past petroleum companies only paid attention to hedging the variation in the crude oil price and volatility however they have now expanded their analysis to encompass renewable sources such as corn and soybeans under the current low carbon biofuel obligations this paper employs garch 1 1 and arji models to estimate the one day ahead value at risk var of the optimal dynamic biofuel portfolio which consists of crude oil corn and soybeans the optimal blended standard is subject to the dual limitations of minimum production costs and the lowest biofuel using requirements our empirical findings confirm that the arji model is more suitable than the garch 1 1 model and further captures the discontinuous jump behavior from the in the sample data the results of out of sample forecasts also are represented that our models play important roles in var estimation and risk management for biofuel portfolio we therefore suggest that the petroleum companies should simultaneously pay attention to jump risk in hedging material costs in the prices of energy related crops

biodiesel as a motor fuel price stabilization mechanism abstract this article studies the capacity of biofuels to reduce motor fuel price fluctuations for this purpose we study dependence between crude oil and biodiesel blend prices in spain copula models are used for this purpose results suggest that the practice of blending biodiesel with diesel can protect consumers against extreme crude oil price increases

testing for common features in north american energy markets abstract using recent advances in the field of applied econometrics we explore the strength of shared trends and shared cycles between north american natural gas and crude oil markets in doing so we use daily data from january 1991 to april 2001 on spot u s henry hub natural gas and wti crude oil prices the results show that there has been decoupling of the prices of these two sources of energy as a result of oil and gas deregulation in the united states we also investigate the interconnectedness of north american natural gas markets and find that north american natural gas prices are largely defined by the u s henry hub price trends

considering macroeconomic indicators in the food before fuel nexus abstract a structural vector autoregression svar model along with a direct acyclic graph is employed to decompose how supply demand structural shocks affect food and fuel markets the results support the hypothesis that fundamental market forces of demand and supply are the main drivers of food price volatility increased biofuel production may cause short run food price increases but not long run price shifts decentralized freely operating markets will mitigate the persistence of any price shocks and restore prices to their long run trends the main policy implications are that oil gasoline and ethanol market shocks do not spillover into grain prices which indicates no long run food before fuel issue in the short run grain prices can spike due to market shocks so programs designed to blunt these price spikes may be warranted

on the prevalence of trends in primary commodity prices abstract this paper applies new time series procedures to examine the prebisch singer hypothesis of a secular deterioration in relative primary commodity prices specifically we allow for up to two structural breaks in 24 price series covering the 1900 98 period for the majority of commodities it is shown that the trend is not well represented by a single downward slope but instead by a shifting trend that often changes sign over the sample period unlike some recent work that has also allowed for structural breaks these results provide much less support for the prebisch singer hypothesis

shopping hours and price levels in the retailing industry a theoretical and empirical analysis i introduction the debate surrounding shopping laws is very much the same regardless of the country in which it occurs the traditional objectives of regulating store opening hours can be divided into four categories i to guarantee access to essential goods and services ii to promote and protect a certain way of life iii to protect small businesses and iv to assure a day of rest for everyone despite these concerns the recent trend in canadian provinces is to extend store opening hours in the retailing industry for instance in july 1990 the quebec government allowed retail stores to stay open on wednesday nights and on sundays the recent deregulation was prompted by changes in lifestyles and increasing constraints on the time people can devote to shopping activities perhaps the most significant are that the number of one parent families is increasing as is the number of couples in which both spouses work there is evidence that changes in opening hours influence the structure of the retailing industry morrison and newman 1983 show that there is a redistribution of sales from small stores to large stores after deregulation an empirical study by moorehouse 1984 shows that in the united states those states that strictly regulate store opening hours do have a smaller proportion of large stores building on their work we examine the short term impact of extended shopping hours on prices at large stores to determine whether consumers have to pay higher prices for greater shopping flexibility to our knowledge this issue has not been addressed in the literature first we develop an extension of morrison and newman s 1983 theoretical model inspired by becker 1965 and location models pioneered by hotelling 1929 chamberlin 1951 1962 lancaster 1966 and salop 1977 we deem the price of a good to have two components the price itself and the time spent by the consumer to purchase the good thus opening hours and store location play a role in the determination of prices we explore the effect of increased opening hours on the demand faced by stores of different sizes and thus on their price levels among other things our model predicts that after deregulation price levels at large stores will increase because of a demand shift in favor of large stores at the expense of small stores we then test this prediction using pooled time series and cross section data prices of five products for thirty one weeks collected before and after the deregulation of store hours in quebec on july 8 1990 the data were collected at three major food stores in the montreal area we obtain estimates of price equations using the pooling method developed by kmenta 1986 the results support our view that prices have increased at large stores since the deregulation the rest of the paper is organized as follows in section ii we develop our analytical framework section iii presents the data and the estimation strategy since a price increase may signal an increase in costs rather than an increase in demand we deal explicitly with this issue in that section of the paper we discuss the empirical results in section iv and we conclude in section v ii the model the following analysis extends that of morrison and newman 1983 a brief initial overview of their work is needed to develop the necessary notation and to set up the problem in their model morrison and newman make two simplifying yet standard assumptions they assume a single perfectly divisible homogeneous commodity and only two types of stores large and small thus consumers choose to shop at small or large stores to minimize the total cost tc of purchasing the commodity on a given shopping trip the total cost includes the cost of the bundle of goods p sub j b where p sub j is the price per unit at store j and b is the bundle size a consumer intends to buy and his own valuation of the time needed to travel to the store a

price cycles and asymmetric price transmission in the u s pork market economists have proposed several plausible explanations for observed price transmission asymmetries in commodity markets unfortunately the econometric methods commonly used in such studies cannot empirically distinguish pricing behavior under the competing theories we argue that the theories may be classified by firm responses to high and low frequency price cycles and use engle s band spectrum regression to test the symmetry of high and low frequency cycles in weekly pork prices the findings indicate that changes in wholesale prices are asymmetrically transmitted to retail prices in relatively low frequency cycles which does not support search costs and other high frequency explanations conversely wholesale pork prices asymmetrically adjust to changes in farm prices at all frequencies copyright 2001 oxford university press

the effect of ethanol listing on corn prices evidence from spot and futures markets abstract the use of corn for ethanol has been the topic of heated discussions in the media and among policy makers as part of this debate some observers have argued that the use of corn in the production of ethanol has had adverse effects on corn prices this paper contributes to this reviving debate by examining the impact of the listing of ethanol futures in the chicago board of trade on the spot and futures prices for corn we find a significant listing effect indicating that the listing of ethanol has had a positive contribution to both price and volatility in the corn market especially in the spot and the shorter maturity futures contracts and mostly through its interaction with trading volume in the corn market we discuss the policy implications of the findings for investors and its relevance for the ongoing debate on us energy policy we conclude with some suggestions for future research

drought ethanol and livestock abstract the 2012 drought in the u s midwest resulted in volatile crop prices with field crops constituting a major input in livestock production livestock producers sought a waiver to renewable fuel standard biofuel mandates they believed such a waiver would mitigate crop price volatility given crops are major inputs in biofuel production the u s environmental protection agency epa denied the waiver under the belief that the waiver would have minimal if any impact on mitigating price volatility employing a vecm the objective is to investigate if it was prudent for the epa to reject the waiver results generally support epa s conclusion that the waiver relaxing the biofuel mandate would have minimal impact

timing constraints and the allocation of time the effects of changing shopping hours regulations in the netherlands abstract a 1996 change in shopping hours regulations in the netherlands provides an opportunity to study the effects of timing constraints on total time spent in shopping working and other activities as well as the timing of these activities we develop a simple structural model to make predictions about the effects of imposition and relaxation of a timing constraint on time use patterns and utilize time diary data from 1995 1997 1999 and 2000 to examine time use patterns by demographic group before and after the change in addition to a change in the timing of shopping we find a non negligible increase in the total time spent shopping

a lagrange multiplier test for causality in variance we adapt the lagrange multiplier lm principle to test for noncausality in variance of financial returns the new test is compared with a portmanteau statistic cheung y w ng l k 1996 a causality in variance test and its application to financial market prices journal of econometrics 72 33 48 a monte carlo study reveals superior power of the lm test

a reexamination of trends in primary commodity prices this paper conducts a reexamination of the prebisch singer hypothesis by employing the unit root test proposed by lee and strazicich 2003 and lee and strazicich 2004 that allow for up to two structural breaks given the higher power of these tests compared to the zivot and andrews 1992 and lumsdaine and papell 1997 tests rejection of the null can be considered as genuine evidence of stationarity the main findings of this paper are that eleven out of twenty four commodity prices are found to be difference stationary implying that shocks to these commodities tend to be permanent in nature the remaining thirteen prices are found to exhibit trend stationary behavior with either one or two structural breaks most of the commodities that do not exhibit difference stationary behavior seem to contain no significant trends there are fewer cases in relation to past studies of commodities that display negative trends thereby weakening the case for the prebisch singer hypothesis

identification and estimation of a class of household production models we consider a class of household production models characterized by a dichotomy property in these models the amount of time spent on household production does not depend on the household utility function conditional on household members having a paid job we analyse the non parametric identifiability of the production function and the so called jointness function a function describing which part of household production time is counted as pure leisure it is shown that the models are identified in the two adult case but not in the single adult case we present an empirical application to swedish time allocation data the estimates satisfy regularity conditions that were violated in previous studies and pass various specification tests for this data set we find that male and female home production time are q substitutes copyright c 2003 john wiley sons ltd

biofuel related price transmission literature a review abstract in this article an extensive review of the rapidly growing biofuel related time series literature is carried out the data used the modeling techniques and the main findings of this literature are discussed providing a review of this flourishing research area is relevant as a guidepost for future research this literature concludes that energy prices drive long run agricultural price levels and that instability in energy markets is transferred to food markets

the interaction between food prices and oil prices this paper provides a statistical methodology to estimate the impact of oil price uncertainty on food prices in doing so it examines the joint impact of oil price and food price uncertainties and their correlation on the food price also the theoretical model was applied to the oil based trinidad and tobago and the empirical results confirm the theoretical predictions the empirical results indicate that a higher oil price increases food price also a higher oil price volatility yields a higher food price moreover an increase in the oil supply reduces the food price

households grocery shopping behavior in the short run theory and evidence this paper extends the study of nonmarket work activities to explain the impact of household characteristics on grocery shopping behavior a constrained utility maximization model is developed and the equilibrium conditions of the model are derived these conditions and the hypotheses implied by them relating to the determinants of time spent in a grocery shopping trip the size of a purchase and the number of such trips within a given period of time were tested using data from a sample which identified the household characteristics of grocery shoppers in these tests using two stage least squares the theoretical implications of our simultaneous equations model are significantly supported

price formation in the german biodiesel supply chain a markov switching vector error correction modeling approach changing linkages between agricultural and energy markets have attracted considerable attention in research and policy discussions during recent years as one of the largest biofuel markets worldwide the german biodiesel market is of particular interest it has grown rapidly since the beginning of the new millennium with this growth being driven mainly by political interventions vertical price transmission channels along the biodiesel supply chain are analyzed in this study we examine the relationship between diesel and biodiesel prices and between rapeseed oil soy oil and biodiesel prices between 2002 and 2008 due to pronounced changes in market conditions and the policy framework a regime dependent markov switching vector error correction model is used the regimes are characterized by markedly different price adjustment behaviors before 2005 and from late 2007 onward a regime characterized by the strong orientation of biodiesel prices toward diesel prices dominates between 2005 and 2007 biodiesel and rapeseed oil prices are mutually interdependent frequent switches between the regimes of the price dynamics during this period indicate a high extent of uncertainty and instability in the market

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

validating energy oriented cge models although cge models have received heavy usage they are often criticized as being insufficiently validated key parameters are often not econometrically estimated and the performance of the model as a whole is rarely checked against historical outcomes as a consequence questions frequently arise as to how much faith one can put in cge results in this paper we employ a novel approach to the validation of a widely utilized global cge model gtap e by comparing the variance of model generated petroleum price distributions driven by historical demand and supply shocks to the model with observed five year moving average price distributions we conclude that energy demand in gtap e is far too price elastic over this time frame after incorporating the latest econometric estimates of energy demand and supply elasticities we revisit the validation question and find the model to perform more satisfactorily as a further check we compare a deterministic global general equilibrium simulation based on historical realizations over the 2001 2006 period during which petroleum prices rose sharply along with growing global energy demands as anticipated by the stochastic simulations the revised model parameters perform much better than the original gtap e parameters in this global general equilibrium context

is there co movement of agricultural commodities futures prices and crude oil even though significant attempts have appeared in literature the current perception of co movement of commodity prices appear inadequate and static in particular we focus on price movements between crude oil futures and a series of agricultural commodities and gold futures a comparative framework is applied to identify changes in relationships through time and various cointegration methodologies and causality tests are employed our results indicate that co movement is a dynamic concept and that some economic and policy development may change the relationship between commodities furthermore we show that biofuel policy buffers the co movement of crude oil and corn futures until the crude oil prices surpass a certain threshold

asymmetric adjustments in the ethanol and grains markets this paper examines the long and short run asymmetric adjustments and pairs trades for nine pairs of spot and futures prices itemized as three own pairs for three different bio fuel ethanol types three own pairs for three related agricultural products namely corn soybeans and sugar and three cross pairs that included hybrids of the spot price of each of the agricultural products and an ethanol futures price most of the spreads asymmetric adjustments generally occur during narrowing the three ethanol pairs that contain the ecbot futures with each of chicago spot new york harbor spot and western european rotterdam spot show different long run adjustments arbitrage profitable opportunities and price risk hedging capabilities the asymmetric spread adjustments for the three grains are also different with corn spread showing the strongest long run widening adjustment and sugar showing the weakest narrowing adjustment among others the empirical analysis indicates the importance of potentially hedging the spot prices of agricultural commodities with ethanol futures contracts which sends an important message that the ethanol futures market is capable of hedging price risk in agricultural commodity markets the short run asymmetric adjustments for individual prices in the nine pairs with the exception of the corn own pair underscore the importance of futures prices in the price discovery and hedging potential particularly for ethanol futures

why do europeans work so little market work per person is roughly 10 higher in the united states than in sweden however if we include the work carried out in home production the total amount of work only differs by 1 i set up a model and show that differences in policy mainly taxes can account for the discrepancy in both labor supply and home production between sweden and the united states these results are independent of the elasticity of labor supply

volatility spillovers between food and energy markets a semiparametric approach previous literature on volatility links between food and energy prices is scarce and mainly based on parametric approaches this article examines these links by using a semiparametric garch model recently proposed by long et al 2011 which is essentially a nonparametric correction of the parametric conditional covariance function the analysis focuses on price links between crude oil ethanol and sugar prices in brazil results suggest strong volatility links between the prices studied parametric approximations of the conditional covariance matrix may lead to misleading results that can be improved upon by using nonparametric techniques

autoregressive conditional heteroscedasticity in commodity spot prices muth s 1961 rational expectations model of commodity markets implies that inventory carryover creates arch processes in prices the model also indicates that the expected price variance is an explanatory variable in price regressions hypotheses were tested on price data of twenty commodities using a variation of engle et al 1987 arch m technique an arch process was found in storable and not in non storable commodity data as expected however changes in expected price variance have no significant impact on price copyright 2001 john wiley sons ltd

anatomy of a crisis the causes and consequences of surging food prices although the potential causes and consequences of recent rising international food prices have attracted widespread attention many existing appraisals are superficial and or piecemeal this article attempts to provide a more comprehensive review of these issues based on the best and most recent research as well as on fresh theoretical and empirical analysis we first analyze the causes of the current crisis by considering how well standard explanations hold up against relevant economic theory and important stylized facts some explanations turn out to hold up much better than others especially rising oil prices the depreciation of the u s dollar biofuels demand and some commodity specific explanations we then provide an appraisal of the likely macro and microeconomic impacts of the crisis on developing countries we observe a large gap between macro and micro factors which when identifying the most vulnerable countries often point in different directions we conclude with a brief discussion of what ought to be learned from this crisis

food versus fuel what do prices tell us abstract sorting out the impacts of biofuels on global agricultural commodity prices is impossible without turning to data and distinguishing between the short run versus the long run impacts using time series prices on fuels and agricultural commodities the aim is to investigate the long run cointegration of these prices simultaneously with their multivariate short run interactions results indicate no direct long run price relations between fuel and agricultural commodity prices and limited if any direct short run relationships in terms of short run price movements sugar prices are influencing all the other agricultural commodity prices except rice with sugar the number one world input for ethanol results indicate increased ethanol production is potentially influencing short run agricultural commodity prices overall results support the effect of agricultural commodity prices as market signals which restore commodity markets to their equilibria after a demand or supply event shock

decompositions of corn price effects implications for feed grain demand and livestock supply this article examines how corn prices affect the demand for feed grains and the supply of livestock outputs the differential approach to the theory of the multiproduct firm is employed to examine ex ante decisions about feed grain demand and livestock supply the estimation results suggest that livestock producers have little flexibility in adjusting the demand for corn in response to an increase in corn prices the substitutable relationship between corn and distillers grains contributes to alleviating pressures on feed costs in response to high corn prices in addition the estimation results highlight that the composition of livestock supply can be altered by changes in livestock prices on the basis of the estimated elasticities the decompositions of profit maximizing input demand are conducted to examine the effects of changes in corn prices on feed grain demand and livestock supply the decomposition results reveal that an increase in corn prices reduces corn demand but raises the demand for distillers grains mainly due to the substitution effects of corn price changes the decomposition results also show that an increase in the price of corn reduces cattle supply but raises the supply of chicken and pork due to the output relationships in supply

a new statistic and practical guidelines for nonparametric granger causality testing abstract in this paper we introduce a new nonparametric test for granger non causality which avoids the over rejection observed in the frequently used test proposed by hiemstra and jones 1994 testing for linear and nonlinear granger causality in the stock price volume relation journal of finance 49 1639 1664 after illustrating the problem by showing that rejection probabilities under the null hypothesis may tend to one as the sample size increases we study the reason behind this phenomenon analytically it turns out that the hiemstra jones test for the null of granger non causality which can be rephrased in terms of conditional independence of two vectors x and z given a third vector y is sensitive to variations in the conditional distributions of x and z that may be present under the null to overcome this problem we replace the global test statistic by an average of local conditional dependence measures by letting the bandwidth tend to zero at appropriate rates the variations in the conditional distributions are accounted for automatically based on asymptotic theory we formulate practical guidelines for choosing the bandwidth depending on the sample size we conclude with an application to historical returns and trading volumes of the standard and poor s index which indicates that the evidence for volume granger causing returns is weaker than suggested by the hiemstra jones test

the integration of energy and agricultural markets this article addresses the evolving links between energy and agricultural markets prior to 2005 there was little correlation between energy and agricultural commodity prices in 2006 2008 with the ethanol boom in the united states there emerged a strong link between crude oil gasoline and corn prices there was little link between ethanol and corn however in late 2008 and 2009 the markets changed as ethanol production came under severe economic pressure and 2 billion out of 12 billion gallons of capacity shut down during this period ethanol became priced more on corn as the breakeven corn price helped drive the ethanol market this article explores the drivers in these markets as well as other major issues facing the corn ethanol industry in the united states such as the blend wall the article concludes with a review of prospects of a future cellulosic biofuels industry

world oil and agricultural commodity prices evidence from nonlinear causality abstract the increasing co movements between the world oil and agricultural commodity prices have renewed interest in determining price transmission from oil prices to those of agricultural commodities this study extends the literature on the oil agricultural commodity prices nexus which particularly concentrates on nonlinear causal relationships between the world oil and three key agricultural commodity prices corn soybeans and wheat to this end the linear causality approach of toda yamamoto and the nonparametric causality method of diks panchenko are applied to the weekly data spanning from 1994 to 2010 the linear causality analysis indicates that the oil prices and the agricultural commodity prices do not influence each other which supports evidence on the neutrality hypothesis in contrast the nonlinear causality analysis shows that i there are nonlinear feedbacks between the oil and the agricultural prices and ii there is a persistent unidirectional nonlinear causality running from the oil prices to the corn and to the soybeans prices the findings from the nonlinear causality analysis therefore provide clues for better understanding the recent dynamics of the agricultural commodity prices and some policy implications for policy makers farmers and global investors this study also suggests the directions for future studies

food energy and environment is bioenergy the missing link abstract we study price linkages between the food energy and bioenergy markets a vertically integrated multi input multi output market model allows us to derive testable hypothesis which we test by applying time series analytical mechanisms to nine major traded food commodity prices along with one weighted average world crude oil price the data consists of 939 weekly observations from january 1993 to december 2010 the empirical findings confirm the theoretical hypothesis that the prices for crude oil and food commodities are interdependent a usd 1 barrel increase in oil prices and food commodity prices increase by between usd 0 09 tonne and usd 1 65 tonne

speculation and corn prices it is commonly asserted that speculative trading activities are largely behind the high and volatile food commodity price behaviour since 2006 in this article we revisit this hypothesis by invest

the cost function given imperfectly flexible capital abstract the properties of the firm s cost function are examined when investment is irreversible and there are costs of capital adjustment the effects of the firm s initial capital stock on total marginal and average costs are analysed

nonlinearities in the u s corn ethanol oil gasoline price system we use a smooth transition vector error correction model to assess price relationships within the u s ethanol industry monthly ethanol corn oil and gasoline prices from 1990 to 2008 are used in the analysis results indicate the existence of long run relationships among the prices analyzed strong links between energy and food prices are identified

asymmetry in retail gasoline and crude oil price movements in the united states an application of hidden cointegration technique abstract there is a common belief that gasoline prices respond more quickly to crude oil price increases than decreases some economists and politicians believe that asymmetry in oil and gasoline price movements is the outcome of a non competitive gasoline market requiring that governments take policy action to address unfair pricing there is no consensus as to the existence or nature of the asymmetric relationship between prices of gasoline and crude oil much of this literature specifies asymmetry in the speed of adjustment and short run adjustment coefficients in contrast granger and yoon s granger c w and yoon g hidden cointegration university of california san diego department of economics working paper 2002 crouching error correction model cecm identifies asymmetry of the cointegrating vectors between components cumulative positive and negative changes of the series applying the cecm to retail gasoline and crude oil prices for the u s we find that there is only evidence of cointegration between positive components of crude oil prices and negative components of gasoline prices in contrast to the literature which attributes asymmetric price movements to market power of refiners these findings suggest that gasoline prices in the long run are more influenced by the technological changes on the demand side than crude oil price movements on the supply side

dynamic impacts of high oil prices on the bioethanol and feedstock markets this study investigates the impacts of high international oil prices on the bioethanol and corn markets in the us between 2007 and 2008 the prices of major grain crops had increased sharply reflecting the rise in international oil prices these dual price shocks had caused substantial harm to the global economy employing a structural vector auto regression model svar we analyze how increases in international oil prices could impact the prices of and demand for corn which is used as a major bioethanol feedstock in the us the results indicate that an increase in the oil price would increase bioethanol demand for corn and corn prices in the short run and that corn prices would stabilize in the long run as corn exports and feedstock demand for corn decline consequently policies supporting biofuels should encourage the use of bioethanol co products for feed and the development of marginal land to mitigate increases in the feedstock price

how market efficiency and the theory of storage link corn and ethanol markets this article uses the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explores statistical evidence for the link we propose that a long run no profit condition is established in distant futures markets for ethanol corn and natural gas and then use the theory of storage to define an inter temporal equilibrium among these prices the relationship shows that under certain conditions future price expectations will influence nearby futures prices and that a short term relationship between input and output prices will exist we demonstrate validity of the theory using a structural price model and then by means of time series techniques

econometric models of asymmetric price transmission abstract in this paper we review the existing empirical literature on price asymmetries in commodities providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models type of asymmetries and empirical findings relative to the previous literature this paper is novel in several respects first it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices second this paper presents an extension of the traditional distinction between long run and short run asymmetries to new categories of asymmetries such as contemporaneous impact distributed lag effect cumulated impact reaction time equilibrium and momentum equilibrium adjustment path regime effect regime equilibrium adjustment path each empirical study is then critically discussed in the light of this new classification of asymmetries third this paper evaluates the relative merits of the most popular econometric models for price asymmetries namely autoregressive distributed lags partial adjustments error correction models regime switching and vector autoregressive models finally we use the meta regression analysis to investigate whether the results of asymmetry tests are not model invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment the main results of our survey can be summarized as follows i each econometric model is specialized to capture a subset of asymmetries ii each asymmetry is better investigated by a subset of econometric models iii the general significance of the f test for asymmetric price transmission depends mainly on characteristics of the data dynamic specification of the econometric model and market characteristics overall our empirical findings confirm that asymmetry in all its forms is very likely to occur in a wide range of markets and econometric models

assessing the effect of oil price on world food prices application of principal component analysis the objective of this paper is to investigate the co movement of food prices and the macroeconomic index especially the oil price by principal component analysis to further understand the influence of the macroeconomic index on food prices we examined the food prices of seven major products eggs meat milk oilseeds rice sugar and wheat the macroeconomic variables studied were crude oil prices consumer price indexes food production indexes and gdp around the world between 1961 and 2005 we use the scree test and the proportion of variance method for determining the optimal number of common factors the correlation coefficient between the extracted principal component and the macroeconomic index varies between 0 87 for the world gdp and 0 36 for the consumer price index we find the food production index has the greatest influence on the macroeconomic index and that the oil price index has an influence on the food production index consequently crude oil prices have an indirect effect on food prices

are biofuels the culprit opec food and fuel the food commodity price boom of 2003 2008 was the most notable in the past several decades having a substantial impact on global economic activity it affected developing nations by impacting real output the balance of payments government budgetary positions and most important the well being of the very poor high commodity prices also affected developed countries by transmitting business cycle disturbances and creating inflationary pressures several recent studies tried to identify and quantify the factors that caused the food commodity price boom of 2003 2008 see for instance isabel vansteenkiste 2009 these studies suggest that one key factor is growth in demand which since the 1980s has outpaced growth in supply other studies argued that biofuel is the culprit since it increases demand for staple crops see for instance donald mitchell 2008 all these studies however assumed competitive markets and did not consider the impact of biofuel on energy costs to farmers moreover they ignored the organization of petroleum exporting countries opec these studies leave us perplexed regarding the true impact of biofuel on food commodity prices was it or was it not an important contributor to the recent food commodity boom we believe that to answer this question the interactions between energy and food must be modeled and opec introduced and the impact of biofuels compared with other factors that are argued by the literature to be important this paper aims to analyze the multiple contributions of energy and biofuels to the increase are biofuels the culprit opec food and fuel

oil price agricultural commodity prices and the dollar a panel cointegration and causality analysis abstract this study examines the dynamic relationship between world oil prices and twenty four world agricultural commodity prices accounting for changes in the relative strength of us dollar in a panel setting we employ panel cointegration and granger causality methods for a panel of twenty four agricultural products based on monthly prices ranging from january 1980 to february 2010 the empirical results provide strong evidence on the impact of world oil price changes on agricultural commodity prices contrary to the findings of many studies in the literature that report neutrality of agricultural prices to oil price changes we find strong support for the role of world oil prices on prices of several agricultural commodities the positive impact of a weak dollar on agricultural prices is also confirmed

the impact of biofuels on commodity food prices assessment of findings for years agriculture has provided most of the fuel for vehicular transportation concerns about availability of fuels balance of trade and climate change led to the introduction of biofuel programs in the united states brazil europeanunion eu andothercountries the impacts of these programs and the relationship between the food and fuel markets have become major topics of economic research this paper summarizes the main findings of alternative lines of research on the relationship between the food and fuel markets and identifies gaps and quandaries that warrant further research this is not meant to be a complete survey and it emphasizes several of our studies within the broader literature the paper distinguishes between two bodies of literature one on the relationship between food and fuel prices and another on the impact of the introduction of biofuel on commodity food prices while biofuel prices do not seem to affect food commodity prices we explain why the introduction of biofuel does moreover biofuelshavenotbeenthemostdominant contributor to the recent food price inflation and different biofuels have different impacts

regulated and unregulated substitutes aversion effects of an ethanol mandate i introduction regulation is a tool policymakers can use to steer markets away from private outcomes deemed to be socially suboptimal or inefficient regulations work either by altering market incentives or changing consumers choice sets as they attempt to reshape or restrict private market equilibria they can sometimes lead to unexpected consumer reactions and unanticipated consequences such as higher consumer costs or reduced effectiveness in meeting goals the extent to which a regulation can have adverse and unanticipated consequences depends on the nature and design of the regulation in this article we highlight a case where the design of an unpopular and hurried regulation led to especially adverse consequences the case is that of the recent ethanol mandate in the state of new south wales nsw australia ethanol mandates have become popular with legislators over the past decade and currently 62 countries have some form of one grfa 2014 a typical mandate requires producers to blend a certain percentage or certain volume of ethanol into the overall supply of gasoline the u s mandate for example requires 18 2 billion gallons of renewable fuels primarily ethanol be blended into the gasoline supply in 2014 up from 16 6 billion in 2013 epa 2013 the european union mandate requires 5 75 renewable fuels in gasoline by 2010 and 10 by 2020 eu 2003 2009 ethanol mandates have been controversial however griffin 2013 grafton kompas and van long 2012 rodriguez et al 2009 serra and zilberman 2013 westbrook et al 2014 and others proponents argue they help slow greenhouse gas accumulation promote renewable energy and reduce dependence on foreign oil they also point out benefits to the domestic farming and ethanol production industries which is sometimes a goal in itself critics on the other hand question their environmental value the need for fossil fuel replacement the lower energy yield and potential for food price inflation when crops grown for food are converted to ethanol use carter rausser and smith 2013 1 they also point out that ethanol blends tend to be more expensive for consumers on an energy adjusted basis than unblended gasoline mandates tend to be on net unpopular with consumers 2 an important consideration when transitioning to a new ethanol mandate or a higher ethanol blend under an existing mandate is ensuring compatibility with the vehicle fleet ethanol is an alcohol and in higher concentrations can be corrosive to engine valves seals and gaskets in older vehicles not designed with ethanol s properties in mind an option many jurisdictions have used in implementing ethanol mandates is to limit the ethanol blend to a level tested and widely believed to be compatible with the vast majority of vehicles on the road in the united states and canada for example a 10 blend has been implemented almost universally while a 5 blend has been used universally in many european countries if regulators instead deem that higher blends are desirable another option is to mandate that newly built vehicles be compatible with the new higher blend and then implement the fuel mandate once the vehicle fleet has largely turned over however vehicle turnover can take decades and this approach has not been as popular with regulators a third option that has found some favor is to introduce a higher ethanol blend that a majority of vehicles can use while still making the previous possibly ethanol free blend available as long as there are those who still need it in principle this dual blend approach promises to accommodate more aggressive ethanol mandates and lead to more ethanol in the fuel supply more quickly however we show that this kind of dual blend or selective mandate in its efforts to hurry ethanol blending beyond the capabilities of the vehicle fleet as a whole or beyond the confidence of consumers in its safety can have severe negative consequences

capacity output and sequential entry two crucial assumptions frequently made in industrial organization are that an established firm deters entry either by a constant high output the sylos postulate or by high excess capacity the excess capacity hypothesis these assumptions may be an accurate description of the observed conduct of firms in some industries however when the rules of the post entry game are clearly specified the optimal output and investment strategies of an established firm may depart considerably from these behavioral assumptions because of this possible inconsistency with rational behavior any conclusions about the formation of industry based upon either assumption are highly suspect what is more these assumptions avoid the main issue of whether entry deterrence is worthwhile at all this paper presents a dynamic model of entry in which established firms pursue a cournot nash alternatively stackelberg strategy toward a potential entrant the entrant behaves in cournot nash fashion and chooses output on the basis of expected postentry profits at the equilibrium of the post entry game within this framework a constant output entry deterring strategy would involve maintenance of an entry deterring output level before and after entry is threatened an excess capacity entry deterring strategy would involve holding excess capacity at an entry deterring level and increasing output to that level after entry is threatened special conditions are presented under which the sylos postulate or the excess capacity hypothesis will accurately describe optimal entry deterring strategies in addition special conditions are examined under which the established firm maintains a constant output or holds pre entry excess capacity when large scale entry does in fact take place the analysis shows that in general established firm reactions to entry are quite different from these special cases the sylos postulate see joseph bain paolo sylos labini franco modigliani 1958 asserts not only that potential entrants expect established firms to maintain their output constant as entry occurs but that established firms keep output constant at a level that deters entry whether or not it is profitable to do so hailed as a welcome major breakthrough on the oligopoly front modigliani 1958 the sylos postulate underlies many papers in the large theoretical and empirical literature on limit pricing yet the sylos postulate ignores both the strategic interaction between firms and the dynamic aspects of entry 2 unless the established firm s monopoly output exceeds the entrydeterring level the established firm with a general cost function able to choose an entry deterring output level will instead always desire a lower output level before entry for the special case where capacity is an upper bound on output and the established firm is a stackelberg leader in the post entry game

hours of operation restrictions and competition aming retail firms this study examines the redistributive effects of government regulations concerning the hours in which retail stores may remain open for business throughout canada municipal by laws restrict nighttime shopping hours to a few specified days of the week in analyzing the outcome of these restrictions a model of consumer behaviour is used which emphasizes the consumers s decision concerning the allocation of purchases between small and large retail outlets the empirical results are consistant with the theoretical model indicating that such market intervention redistributes sales from large to small stores

assessing the impact of us ethanol on fossil fuel markets a structural var approach abstract despite the growing importance of biofuels the effect of biofuels on fossil fuel markets is not fully understood we develop a joint structural vector auto regression var model of the global crude oil us gasoline and us ethanol markets to examine whether the us ethanol market has had any impact on global oil markets the structural var approach provides a unique method for decomposing price and quantity data into demand and supply shocks allowing us to estimate the distinct dynamic effects of ethanol demand and supply shocks on the real prices of crude oil and us gasoline ethanol demand in the us is driven mainly by government support in the form of tax credits and blending mandates shocks to ethanol demand therefore reflect changes in policy more than any other factor in contrast ethanol supply shocks are driven by changes in feedstock prices a principle finding is that a policy driven ethanol demand expansion causes a statistically significant decline in real crude oil prices while an ethanol supply expansion does not have a statistically significant impact on real oil prices this suggests that even though us ethanol market is small the influence of us biofuels policy on the crude oil market is pervasive we also show that ethanol demand shocks are more important than ethanol supply shocks in explaining the fluctuation of real prices of crude oil and us gasoline

the welfare economics of a biofuel tax credit and the interaction effects with price contingent farm subsidies a framework is developed to analyze the effects of a biofuel consumer tax exemption and the interaction effects with a price contingent farm subsidy ethanol prices rise above the gasoline price by the amount of the tax credit corn farmers gain directly while gasoline consumers only gain from any reduction in world oil prices due to the extra ethanol production domestic oil producers lose historically the intercept of the ethanol supply curve is above the gasoline price hence part of the tax credit is redundant and represents rectangular deadweight costs that dwarf triangular deadweight cost measures of traditional farm subsidies copyright 2007 oxford university press

speculation and volatility spillover in the crude oil and agricultural commodity markets a bayesian analysis this paper assesses factors that potentially influence the volatility of crude oil prices and the possible linkage between this volatility and agricultural commodity markets stochastic volatility models are applied to weekly crude oil corn and wheat futures prices from november 1998 to january 2009 model parameters are estimated using bayesian markov chain monte carlo methods speculation scalping and petroleum inventories are found to be important in explaining the volatility of crude oil prices several properties of crude oil price dynamics are established including mean reversion an asymmetry between returns and volatility volatility clustering and infrequent compound jumps we find evidence of volatility spillover among crude oil corn and wheat markets after the fall of 2006 this can be largely explained by tightened interdependence between crude oil and these commodity markets induced by ethanol production

integrating bioenergy into computable general equilibrium models a survey in the past years biofuels have received increased attention since they were believed to contribute to rural development energy security and to fight global warming it became clear though that bioenergy cannot be evaluated independently of the rest of the economy and that national and international feedback effects are important computable general equilibrium cge models have been widely employed in order to study the effects of international climate policies the main characteristic of these models is their encompassing scope global models cover the whole world economy disaggregated into regions and countries as well as diverse sectors of economic activity such a modelling framework unveils direct and indirect feedback effects of certain policies or shocks across sectors and countries cge models are thus well suited for the study of bioenergy biofuel policies one can currently find various approaches in the literature of incorporating bioenergy into a cge framework this paper gives an overview of existing approaches critically assesses their respective power and discusses the advantages of cge models compared to partial equilibrium models grouping different approaches into categories and highlighting their advantages and disadvantages is important for giving a structure to this rather recent and rapidly growing research area and to provide a guidepost for future work

volatility spillover between oil and agricultural commodity markets abstract this study examines volatility transmission between oil and selected agricultural commodity prices wheat corn soybeans and sugar we apply the newly developed causality in variance test and impulse response functions to daily data from 01 january 1986 to 21 march 2011 in order to identify the impact of the food price crisis the data are divided into two sub periods the pre crisis period 01 january 1986 to 31 december 2005 and the post crisis period 01 january 2006 21 march 2011 the variance causality test shows that while there is no risk transmission between oil and agricultural commodity markets in the pre crisis period oil market volatility spills on the agricultural markets with the exception of sugar in the post crisis period the impulse response analysis also indicates that a shock to oil price volatility is transmitted to agricultural markets only in the post crisis period this paper thereby shows that the dynamics of volatility transmission changes significantly following the food price crisis after the crisis risk transmission emerges as another dimension of the dynamic interrelationships between energy and agricultural markets

non sequential consumer search and the consequences of a deregulation of trading hours abstract this paper analyzes the consequences of a liberalization of shopping hours in a market where consumers collect price information through non sequential search it is first shown that with as well as without restrictions on search time an equilibrium price distribution and possibly a single price equilibrium with the monopoly price exist then it is demonstrated that a liberalization is either ineffective or leads to price reductions increases in consumer welfare and larger market shares of more efficient firms

non parametric and parametric modeling of biodiesel sunflower oil and crude oil price relationships abstract multivariate local linear regression and parametric error correction models are applied to assess price linkages and price transmission patterns between food and energy prices in spain weekly biodiesel sunflower and crude oil prices observed from november 2006 to october 2010 are used in the empirical analysis results suggest the existence of a long run equilibrium relationship between the three prices studied biodiesel is the only variable that adjusts to deviations from this long run relationship local linear regression techniques show that the speed of adjustment of biodiesel prices is faster when biodiesel is relatively cheap than when it is expensive energy prices are also found to influence sunflower oil prices through short run price dynamics

vegetable oil market and biofuel policy an asymmetric cointegration approach abstract the present paper analyses the long run relationship between vegetable oil prices and conventional diesel prices in the eu for the period 2005 2007 we applied recent developments in the threshold cointegration approach to investigate the presence of asymmetric dynamic adjusting processes between the prices of rapeseed oil sunflower oil and soybean oil and the price of a mineral oil diesel the results presented suggest a two regime threshold cointegration model only for the rapeseed oil diesel price pair thus the rapeseed oil price adjusts rapidly to its long run equilibrium determined by fossil diesel prices but this adjustment is asymmetric it differs if the divergence between the two prices is above or below a critical threshold consequently rapeseed oil appears particularly exposed to external shocks deriving from global political scenarios suggesting the reassessment of the high quota 80 of eu biodiesel represented by this vegetable oil

world oil prices and agricultural commodity prices evidence from an emerging market abstract oil prices are thought to have direct effect on agricultural prices followed by an indirect effect through the exchange rate this paper examines the short and long run interdependence between world oil prices lira dollar exchange rate and individual agricultural commodity prices wheat maize cotton soybeans and sunflower in turkey to this end the toda yamamoto causality approach and generalized impulse response analysis for identification of the long and short run interrelationships are applied to the monthly data spanning from january 1994 to march 2010 the impulse response analysis suggests the turkish agricultural prices do not significantly react to oil price and exchange rate shocks in the short run the long run causality analysis reveals that the changes in oil prices and appreciation depreciation of the turkish lira are not transmitted to agricultural commodity prices in turkey hence our results support neutrality of agricultural commodity markets in turkey to both direct and indirect effects of oil price changes

commodity prices and growth in africa a frican economies export primary commodities and most export little else policymakers as well as economists and historians of african economic development have seen these exports as both a hope and a curse the following parable tells the story once upon a time a servant of the ruler discovered a miraculous plant which grew readily in that country and whose seeds could be woven into fine cloth so desirable was this fabric that it became prized all over the world and fetched a high price after two score years the plant accounted for most of the country s trade with the world the ruler ordered the peasants to grow the plant paid them only a fraction of its price and he and his nobles became fabulously wealthy because the ruler wished to be remembered as a great ruler and as the father of his country he used his wealth to build a great army and brought machines from foreign countries to make the fine goods that previously could only be obtained from foreign merchants but the machines often broke down and the goods that they made were of poor quality and after the ruler died they were left to rust under the ruler s successor there was a war in a foreign land where the plant also grew so that there was a great shortage and its price increased threefold in only three seasons the new ruler spent his newfound riches on fantastic extravagance while immense sums were expended on public works after the manner of the east and on productive works carried out in the wrong way or too soon not even the threefold increase in prices could support these expenditures and the country soon found itself deeply in debt when the war ended and the price fell the country could no longer pay the interest on its debt or borrow more money even after it had sold its only useful public work to a foreign power so that power sent a mission to the country the publication of whose report from which the above

unit root properties of crude oil spot and futures prices in this article we examine whether wti and brent crude oil spot and futures prices at 1 3 and 6 months to maturity contain a unit root with one and two structural breaks employing weekly data over the period 1991 2004 to realise this objective we employ lagrange multiplier lm unit root tests with one and two endogenous structural breaks proposed by lee and strazicich 2003 minimum lagrange multiplier unit root test with two structural breaks review of economics and statistics 85 1082 1089 2004 minimum lm unit root test with one structural break working paper no 04 17 department of economics appalachian state university we find that each of the oil price series can be characterised as a random walk process and that the endogenous structural breaks are significant and meaningful in terms of events that have impacted on world oil markets

regulatory lag and deregulation with imperfectly adjustable capital abstract the dynamic effects of regularity lag and deregulation on the behavior of a firm with imperfectly adjustable capital are examined given adjustment costs and irreversible investment the firm reacts in advance to anticipated changes in regulation in the regulatory lag case capital increases after regulation is imposed the averch johnson effect is observed before regulation but not necessarily afterwards sufficient conditions are given for the capital bias to increase the regulated firm may choose inputs reflecting either a labor or capital bias in anticipation of deregulation sufficient conditions are given for the capital bias to be lessened by deregulation

hedgers funds and small speculators in the energy futures markets an analysis of the cftc s commitments of traders reports the commodity futures trading commission cftc s commitments of traders cot data are examined for crude oil unleaded gasoline heating oil and natural gas futures contracts the collection procedures for the cot data are first examined followed by granger causality tests to determine if relationships between trader positions and market prices exist a positive correlation between returns and positions held by noncommercial traders and a negative correlation between commercial positions and market returns are found furthermore positive returns result in an increase in noncommercial net positions in the following week whereas the net long positions held by commercial hedgers decline following price increases however traders net positions do not lead market returns in general

spatial market integration in the presence of threshold effects a large body of research has evaluated price linkages in spatially separate markets much recent research has applied models appropriate for nonstationary data such analyses have been criticized for their ignorance of transactions costs which may inhibit price adjustments and thus affect tests of integration this analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs we evaluate daily price linkages among four corn and four soybean markets in north carolina nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks our results confirm the presence of thresholds and indicate strong support for market integration though adjustments following shocks may take many days to be complete in every case the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored a large amount of empirical research has evaluated the extent to which spatially separate markets are integrated though the term is used loosely in the literature tests of market integration usually consider the extent to which shocks are transmitted among spatially separate markets the integration of markets can have important implications for price discovery and the operation of the market since persistent deviations from integration may imply riskless profit opportunities for spatial traders

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies