STATIONARITY PROPERTIES OF WORLD SUGAR PRICES

Kahuni, Abel Tasiyana, Bozward, David and Butler, Allan (2022) STATIONARITY PROPERTIES OF WORLD SUGAR PRICES. International Journal of Agribusiness and Plantation Management. (In Press)

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Abstract

The perceived existence of unit roots in macroeconomic variables has significant effect on econometric analysis of macroeconomic variables. Indeed, unit root testing has become a precondition in econometric modeling. Numerous methods are proposed and employed to test for unit roots. Some methods do consider the presents of structural breaks and other methods do not consider structural breaks. This paper considers the arguments of these methods through examining stationarity properties of World Sugar Futures Contracts (WSFCs) using unit root tests. This study uses quarterly data of WSFCs prices covering the period from 1990Q1 to 2019Q4. The price-series data is collected from the USDA-ERS data base. For comparison, traditional unit root tests: Augmented Dickey and Fuller (ADF) and Phillips and Perron (P-P) test that do not consider breaks in the prices are employed. Zivot and Andrews (ZA) test, which accounts for one break is also employed. These three methods tests null hypothesis (H_0) of unit root against the alternative hypothesis (H_1). ADF and P-P tests revealed acceptance of the H_0 in levels, across all price-series. After repeating the test using first difference, the result showed rejection of the H_0. Similarly, Zivot and Andrews test failed to reject the H_0 in the level form and with different break dates. The Z-A test is repeated using the first difference. The results then showed rejection of the H_0. Jointly, these results show that WSFCs prices have unit roots in levels, which means the series are not stationary. Price-series became stationary in the first difference and are 1(1). Although, these tests yielded similar results, it is the statistical power of the methods that consider structural breaks and their implications and significancy in any econometric price analysis.

Item Type: Article
Additional Information: No permissions to deposit in repository, included as part of body of work. Do NOT change from repository staff only.
Keywords: Unit Roots, Structural breaks, Price-series, Time-series, Stationarity, Sugar Futures
Divisions: Business and Entrepreneurship
Depositing User: Dr David Bozward
Date Deposited: 23 Feb 2022 12:03
Last Modified: 07 Oct 2022 15:29
URI: https://rau.repository.guildhe.ac.uk/id/eprint/16518

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