Publications:
Yang, Y., and B. Karali. 2022. “How Far is too Far for Volatility Transmission?” Journal of Commodity Markets 26: Article 100198
Abstract: This study investigates the existence of volatility transmission between soybean and its products, which are linked through a cross-border supply chain across the U.S. and China. We estimate a multivariate GARCH model with BEKK specification with daily synchronized returns of the CBOT soybean, DCE soybean meal, and DCE soybean oil futures contracts. To better illustrate the cross-volatility spillovers, we consider volatility transmission across three markets in two subperiods and evaluate the impacts of two significant economic events on price volatility. The estimated results indicate the existence of volatility spillovers to each market from the other two markets. We observe the volatility responses in Chinese soybean product markets to an innovation originating from the U.S. soybean have become weaker after 2009. Moreover, we study the volatility reactions to two significant economic events, the 2008 financial crisis and 2018 U.S.-China trade dispute, but the volatility reactions can only be found in the financial crisis.
Yang, Y., and B. Karali. 2024. “A Multivariate Quantile Approach for Testing Asymmetric Price Transmission in a Joint Production Process.” Journal of Agricultural and Resource Economics 49(2): 371-391
Abstract: Output markets usually respond to input price changes asymmetrically, with prices rising faster than they fall, known as the rockets and feathers pattern. This pattern, however, has not been empirically tested in the literature for a joint production process, in which an input is transformed into more than one output, despite strong connections among the markets and the possibility that one output’s price response to an input price change might depend on the other output’s price level. We fill this gap by using a vector error correction quantile (VECQ) framework to investigate if and under which market conditions such asymmetric price transmission occurs. We apply our model to two soybean end products, soybean meal and oil, that are jointly produced by crushing soybeans. We find that the prices of end products respond more to input price increases rather than decreases when their own market is bullish but the other product’s market is bearish, confirming the rockets and feathers pattern at the extreme deciles of the price change distributions.
Yang, Y., and A. McKenzie. 2025. “Do Corn Options Update Volatility Expectations in the Wake of USDA Reports?" Journal of Futures Markets. Forthcoming
Abstract: This paper investigates the information value of USDA crop reports in terms of their impacts on rational agents’ expectations of future realized price volatility. While it is well known that uncertainty – proxied by options market implied volatility – is reduced in the wake of USDA reports, this is the first study to examine if information contained in USDA reports impacts market agents’ ex ante expectations of realized volatility. We use a Hamilton-type approach to reveal that August crop reports are “newsworthy” – at least in some years – in refining rational agents’ volatility expectations, and movements in realized volatility in the post report period mirror these expectations. Importantly, in the wake of USDA report releases corn options at least partially reflect updates in volatility expectations. However, options market adjustments are not instantaneous, highlighting potential inefficiencies in options market volatility forecasts.
Working Papers:
Yang, Y., and B. Karali, “The Role of USDA Reports on Simultaneous Extreme Price Movements in Agricultural Substitutes.” (under review)
Abstract: This study examines how USDA reports influence simultaneous extreme price movements in agricultural substitutes: corn-soybean and winter wheat-spring wheat. By using exceedance counts for returns and volatility in an ordered logistic model, we assess the relationship between USDA report surprises and the likelihood of coexceedances (simultaneous extreme price movement in multiple markets). The results show that surprises in grain and oilseed reports increase the probability of coexceedances in these markets. Notably, the corn-soybean pair is most affected by Crop Production Annual Summary and Acreage report surprises, while Winter Wheat Seedings and Grain Stocks surprises drive extreme movements in the wheat pair. Our findings of exceedances in substitute commodities demonstrate that USDA reports provide cross-commodity information that the market values.
Yang, Y., A., Anderson, and A., McKenzie, “Inventory as a Signal: Understanding Spread Behaviors in Grain Futures Markets” (Manuscript prepared for submission)
Abstract: Inventory levels play a significant role in explaining intertemporal futures price relationships. This study investigates the effect of unexpected inventory changes on futures spreads between new and old crop contracts. Specifically, we consider inventory surprises (i.e., the difference between USDA and private forecasts for ending stocks) as a proxy for inventory changes, capturing their impact from the current and previous years. We use a generalized autoregressive conditional heteroskedasticity (GARCH) model to examine how inventory affects these futures spreads of corn and soybeans. Our major findings reveal that inventory surprises in current-year inventory can serve as an effective signal for spread behavior: higher-than-expected surprises consistently widen both new-to-old and old-to-new spreads. These findings align with the theory of storage and highlight the importance of market sentiment towards inventory in shaping futures spreads. The insights are particularly relevant for merchandisers and producers, as futures spreads represent the cost of carrying the commodity from periods of seasonally high production (or non-harvest seasons) to other periods of low production (or harvest seasons).
Selected Work In Progress:
Yang, Y., R. Goyal, and A. McKenzie. “Global Supply-Demand Dynamics and U.S. Grain Futures Price Movements.”
Yang, Y., and A. Goswami. “The Role of Global Supply- and Trade Policy Shocks in Canadian Food Supply Chains.”
Yang, Y., and A., McKenzie. “Testing The Hedging Pressure Hypothesis in U.S. Rice Futures Prices.”
Yang, Y. “Processing Value and Input Price Uncertainty: Evidence from Corn and Soybean Crush”