The role of palm oil in stabilising the price of vegetable oil market: empirical evidence using MGARCH approach
2022
Tamat Sarmidi | Abdul Hafizh Mohd Azam | Abu Hassan Shaari Md Nor | Kalsom Zakaria
This paper investigates the dynamic relationship among four major vegetable oils for both the first and second moment using the Multivariate GARCH model under Baba, Engle, Kraft and Kroner (BEKK). The result from the first moment, which is return spillover, shows palm oil emerges as a vital source of the spillover, while rapeseed oil shows non-dominance to any edible oils. Meanwhile, the second-moment analysis shows volatility spillover from palm oil and soybean oil to other edible products, but no one dominates in shock transmission. Evidence of the bidirectional causality in both first and second moments for most edible oils show less opportunity for diversification strategy in the vegetable oil market. On the other hand, the result suggests stabilizing palm oil price volatility is necessary to reduce vegetable oil price uncertainty. This finding might help policymakers propose appropriate risk mitigation strategies in the vegetable oil market to ensure price stability.
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