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Activity Number:
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211
- Contributed Poster Presentations: Business and Economic Statistics Section
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Type:
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Contributed
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Date/Time:
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Tuesday, August 4, 2020 : 10:00 AM to 2:00 PM
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Sponsor:
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Business and Economic Statistics Section
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Abstract #313755
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Title:
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Forecasting Volatility in Agricultural Commodity Markets Using the Limit Order Book
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Author(s):
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Julieta Frank and Damla Oz*
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Companies:
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University of Manitoba and University of Manitoba
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Keywords:
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Agricultural commodities;
Electronic market;
Limit Order Book;
Market microstructure;
Volatility
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Abstract:
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Recently, agricultural commodity markets shifted to the electronic platform in which traders submit limit buy or sell orders to the exchange where a centralized computer system places them in the limit order book (LOB). We argue that the information contained in the LOB may be valuable to explain intraday volatility. The purpose of this research is to investigate the effect of the price impact of incoming buy and sell limit orders on volatility, and to incorporate this variable into models to improve volatility prediction. We estimate a high frequency vector error correction (VEC) model for quotes and depths. We use the VEC framework because the ask and bid quotes refer to the same underlying commodity and therefore are naturally integrated. We formulate impulse response functions and estimate the impact of shocks induced by incoming orders on the prices. We then construct a price impact measure and incorporate it on the volatility model. We use the GARCH framework to model and predict volatility in agricultural markets. With this research we expect to shed light on the determinants of volatility at the microstructure level, and provide a better understanding of the price dynamics.
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Authors who are presenting talks have a * after their name.
