TY - JOUR
T1 - Endogenous risk in rational-expectations commodity models
T2 - A multivariate generalized ARCH-M approach
AU - Holt, Matthew T.
AU - Aradhyula, Satheesh V.
PY - 1998/6
Y1 - 1998/6
N2 - The feasibility of including endogenous risk in a rational-expectations model is examined by using a multivariate GARCH-M setup. Unlike previous attempts to model risk under the rational-expectations hypothesis (REH), the model's full covariance structure is allowed to be time varying. The application is with a market model of the U.S. broiler industry; results indicate broiler production is responsive to time-varying price volatility, although the estimated effects are not large. The GARCH-M model is compared with one that uses a two-step approach. Evidence indicates the informationally efficient GARCH-M approach is superior.
AB - The feasibility of including endogenous risk in a rational-expectations model is examined by using a multivariate GARCH-M setup. Unlike previous attempts to model risk under the rational-expectations hypothesis (REH), the model's full covariance structure is allowed to be time varying. The application is with a market model of the U.S. broiler industry; results indicate broiler production is responsive to time-varying price volatility, although the estimated effects are not large. The GARCH-M model is compared with one that uses a two-step approach. Evidence indicates the informationally efficient GARCH-M approach is superior.
KW - Broiler market
KW - Endogenous risk
KW - Multivariate GARCH-M models
KW - Rational expectations
KW - Supply response
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U2 - https://doi.org/10.1016/S0927-5398(97)00014-5
DO - https://doi.org/10.1016/S0927-5398(97)00014-5
M3 - Article
SN - 0927-5398
VL - 5
SP - 99
EP - 129
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
IS - 2
ER -