Volatility Transmission: A Linkage Between Grain Markets and Food Companies

Abstract

Price fluctuations in grain markets can impact profitability and consequently stock price of food companies. There is lack of literature on price and volatility relation between grain markets and food sectors. We employ a multivariate GARCH model to investigate price volatility transmission between publicly traded food companies and grain markets in the United States. Our results show evidence of bidirectional volatility spillover with stronger effects from grain markets to food companies. The degree of volatility spillover from the grain markets to food sectors ranks as follows: processed and packaged goods sector > meat sector > farm sector > dairy sector.