El Nino and La Nina induced volatility spillover effects in the U.S. soybean and water equity markets

摘要

This paper examined links between U.S. soybean prices and the Dow Jones U.S. Water Index (DJUSWU). We particularly studied the impact of El Nino and La Nina events on price risk spillovers. Results showed that La Nina significantly increases the linkages between soybean and water equity markets. Based on this, we identified a new soybean hedge strategy that would be possible if a futures contract for the DJUSWU existed. This new strategy improves on the effectiveness of both a conventional naive soybean market hedge, and a traditional time-varying hedge. The findings can be used to assist soybean agents in managing increased market risks associated with extreme weather events.