Co-Movement among World Vegetable Oil Prices: A Wavelet-Based Analysis
Abstract
This paper examines the co-movement among major world vegetable oil prices (palm, soybean, rapeseed, and sunflower oil) by using wavelet-based analysis for a dataset ranging from January 2003 until March 2018. The wavelet approach is superior to the other techniques as it provides a flexible tool in investigating the changes in time and frequency domain simultaneously. The empirical result shows that the strong comovement among vegetable oils are driven by strong contagion and interdependence but incomplete vegetable oil market integration among major world vegetable oil. Interestingly, palm oil shows a lower degree of relationship with other edible oil in all scales after 2015. Meanwhile, more recent data shows that soybean and rapeseed oil have shown an increase in interdependence among each other. The study finds that multiple cross-correlations indicate that soybean oil is a potential leader of the vegetable oils market followed by palm oil primarily in the low scale period. This study on the time-frequency domain gives new insight for traders and investors in the vegetable oil market relating to the strategy for portfolio diversification and risk management.
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