Volatility Effects of Index Trading and Spillovers on US Agricultural Futures Markets: A Multivariate GARCH Approach

We examine the effects of speculation in the form of index trading on contemporaneous returns and volatility on corn, soybeans and wheat futures markets on the Chicago Board of Trade using multivariate generalised autoregressive conditional heteroscedasticity models and weekly data for 2006-2014. We also assess spillovers. Results are threefold. First, contemporaneous effects of index trading on own returns are positive and inelastic, and they are partially mitigated in the following week. Second, volatility depends positively on own past volatility, and volatility spillovers are limited. Third, index trading reduces own volatility.