ABSTRACT
sciencedirect.com/…ce/journal/02755319/33
ABSTRACT
Measuring the Effect of Oil Prices on Wheat Futures Prices
This research lends insight into the empirical validity of reverse regressions hypothesizing that spot prices today help to predict forward rates in the future. This paper analyzes the possible relationship between wheat futures prices and spot oil prices considering the importance of the effects of temporal aggregation and alternative model specification for the understanding of the empirical relationships between the two markets.
Evidence indicates that model specification and time series aggregation over daily, weekly and monthly aggregations influence standard errors on parameter estimates as standard errors are likely to increase with aggregation. Therefore, t-ratios are likely to change as well. Further, while goodness-of-fit measures might increase with aggregation, forecast accuracy with macro-level aggregations might deteriorate owing to information loss. The results indicate the presence of contemporaneous causality between the variables of interest, however, the presence of strict causality is mixed and the results do vary with units of time aggregation.
Key Words: wheat prices, crude oil prices, temporal aggregation, causal structure, forecasting
JEL Classifications: Q1, Q4, G1, D4, C1