Permalink : http://hdl.handle.net/2115/63272

The purpose of this paper is to explore in detail the causal relation of the soybean futures markets between the Tokyo Grain Exchange (TGE) and the Chicago Board of Trade (CBT), and to search for sources of the ARCH effects on the TGE in as much as the volatility movements on the TGE can be explained by information accumulated on the CBT. The approach to be adopted is similar to those suggested by Lamoureux and Lastrapes(1990), who utilized the GARCH model under the Mixture of Distributions Hypothesis (MDH) of Clark (1973). In the current study, the GARCH framework is extended to the exponential GARCH model of Nelson (1991). Based on MDH, the EGARCH model can capture the volatility persistence. The empirical results suggest that total trading volume, as a proxy for information flow to the CBT, plays a statistically significant role in the price variability on the TGE. However, the persistence in volatility does not disappear when the volume variables are added to the conditional variance equation. Therefore, the volume on the CBT is only part of the sources of the volatility on the TGE. In addition, significant day-of-the-week effects are observed: the volatility increases on each Friday and Tuesday.