Price connectedness in U.S. ethanol terminal markets
Section snippets
JEL categories
Q02
Q11
C3
The U.S. ethanol market
In this section, we focus on two U.S. ethanol market characteristics that are key to understand information spillovers: the relevance of the Chicago terminal and the ethanol policies.
Methods
In this section we describe the methods used to derive the connectedness measures among the daily ethanol prices observed across the U.S. from January 2, 2013 to February 4, 2021 and shed light on its possible drivers.
We assess the degree of connectedness among ethanol spot prices at different U.S. terminals using the Diebold and Yilmaz, 2012, Diebold and Yilmaz, 2014 approach. Their method is based on the Moving Average (MA) representation of a VAR model representing an N-dimensional
Data and results
This section presents the research results in three subsections, the first being devoted to the data, the second to connectedness measures and the third to their possible drivers.
Conclusions
This article quantifies the connectedness between the domestic U.S. ethanol markets for the first time. Connectedness measures are based on forecast error variance decompositions that inform which prices drive market dynamics. We consider major ethanol markets in the country that cover the Midwest, where ethanol production is concentrated, and East, West and Gulf Coast markets. We pay special attention to spillovers to and from Chicago, as it is equipped with one of the largest terminals in the
Inclusion and diversity
One or more of the authors of this paper self-identifies as an underrepresented ethnic minority in science.
Credit author statement
Maria Gerveni: Conceptualization, Data curation, Formal analysis, Writing - original draft. Teresa Serra: Conceptualization, Funding acquisition, Supervision, Writing - review & editing. Scott H. Irwin: Funding acquisition, Writing - review & editing. Todd Hubbs: Writing - review & editing.
Declaration of Competing Interest
We have no known conflict of interest to disclose.
Acknowledgements
We thank the Editor and Referees for helpful comments and suggestions that have substantially improved this article. This research was funded by the USDA Cooperative Agreement Number 58-3000-0-0075 and the Office of Futures and Options Research (OFOR) at the University of Illinois Urbana-Champaign.
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Cited by (0)
- 1
Maria Gerveni is a PhD student at University of Illinois at Urbana-Champaign.
- 2
Teresa Serra is a Professor and the Hieronymus Distinguished Chair in Futures Markets at University of Illinois at Urbana-Champaign.
- 3
Scott H. Irwin is a Professor and the Laurence J. Norton Chair of Agricultural Marketing at University of Illinois at Urbana-Champaign.
- 4
Todd Hubbs is a Cross Commodity Analyst at Economic Research Service (USDA).