An Analysis of Factors Affecting the Price and Volatility of Coffee Future Returns
Anastasios Alexandridis Associate Professor in the Department of Business Administration Technological Education Institute (TEI) of West Macedonia Kila 50100 Kozani, Greece E-mail: tasosalexandridis@yahoo.gr Tel: +00306944523644; Fax: + 30 2461 39582 Abstract This paper examines the effect of financial and currency factors on the coffee future prices. The empirical results indicate that the stock market, and particularly the SP500, exerts positive impact on the coffee market. The findings also suggest that the energy markets influence positively the coffee market, whereas the bond market volatility affects it negatively. In addition, the structural analysis of coffee prices volatility showed that the conditional variance appears to be more volatile in response to positive shocks than to negative, contrary to the equities market. It also shows that the appreciation of U.S. dollar has a stabilizing effect on the conditional variance of the coffee return series. Keywords: Coffee futures; Crude oil; Ethanol; Bond; Exchange rates JEL Classification Codes: F39, G10, G15
1. Introduction
Coffee, a widely consumed beverage prepared from roasted seeds, is mainly cultivated in Latin America, Southeast Asia, and Africa. Although there are several different coffee species, two main species are farmed today, the Arabica and the Canephora, known also as Robusta coffee. Arabica coffee is most popular than Robusta accounting for 75-80% of the world's coffee production. The key players in the global coffee market include Brazil, Vietnam, Colombia and Indonesia. Coffee futures contracts are traded in the New York Mercantile Exchange, with contract deliveries occurring every year in March, May, July, September, and December. Despite a disagreement of the