AN EMPIRICAL STUDY ON THE INTERACTIONS BETWEEN FINANCIAL MARKETS AND AGRICULTURAL MARKETS: THE DCC-MGARCH MODEL APPROACH

Abstract

The objective of this article is to examine the dynamics of correlations between financial and agricultural markets, more specifically wheat markets, in order to measure the transmission of volatility following the outbreak of the Covid-19 crisis. It will also be a question of analyzing the causal relationship while identifying which market influences the other. Engle's DCC-MGARCH model (2002) will measure the intensity of dynamic conditional correlations (DCC) between spot prices and wheat futures as well as the VIX-S&P500 index which represents the aversion indicator to the risk of investors in global financial markets. We expect a positive correlation between the financial markets and the wheat markets and a significant increase in DCC insofar as the interconnection between these two markets has accentuated the phenomenon of interdependence which suggests that periods of stability and crises coincide.