COINTEGRATION ANALYSIS OF THE WORLD’S SUGAR MARKET: THE EXISTENCE OF THE LONG-TERM EQUILIBRIUM
In general, sugar markets are among the fastest developing markets in the world (Huang & Xiong, 2020). The significant global market liberalization resulted in the fast growth of supply and stocks (Zuckerindustrie, 2018). At the same time, continuous changes in consumption patterns are affecting the global demand for sugar and sugar products (Muhammad et al., 2019). On the other hand, global sugar market is still influenced by the existing protectionists measures (see Solomon, 2014). It is of note that protectionist policies are applied in sugar markets by both developed and developing countries (Haley, 2016). Eventually, global sugar market appears to be suffering because of high-applied tariffs, limited tariff quotas and production subsidies (da Costa et al., 2015). As a result, this is reflected in price transmission and significant sugar price differences existing among individual regions in the world. Another specific feature of global sugar market is its notable price fluctuation which is a result of speculative trade activities.
Jméno a příjmení autora:
Elena Kuzmenko, Luboš Smutka, Wadim Strielkowski, Justas Štreimikis, Dalia Štreimikienė
Sugar, exchange/commodity stocks, cointegration, VECM, equilibrium
DOI (& full text):
This paper addresses the issue of interconnection among major sugar markets and commodity/exchange stocks in different parts of the world using the Johansen cointegration approach and vector error…více
This paper addresses the issue of interconnection among major sugar markets and commodity/exchange stocks in different parts of the world using the Johansen cointegration approach and vector error correction model. Due to a high degree of sugar market fragmentation and corresponding diversity in price levels and its volatility in different regions, the results of our analysis sheds some light on the very fact of a ‘single’ global sugar market existence and can be important not just with regard to producers and buyers of sugar but for the international investors as well, both in the light of risk governance and maximizing profitability. Using the evaluation of the extent of connection among regional sugar markets, one can assess potential benefits available to investors through international diversification between the analyzed markets. Our analysis has revealed the presence of mutual interaction among the selected sugar markets/commodity stock exchanges in individual regions and confirmed the long-term equilibrium among them. Therefore, despite an obvious diversity in price level and their fluctuations in different world regions, the selected for the analysis regional sugar markets are acting together as a single organism. The determining of the extent to which the analyzed sugar markets are interconnected have significantly strengthen the understanding of the latest sugar price developmental trends. In addition, the results of this study opened space and mapped out clear objectives and measurable targets for potential research – to reveal what markets can be referred to as leading ones in a sense that namely they primarily serve as a source of price turbulence. In summary, our results revealed and confirmed the long-term equilibrium among them and the outcomes of this study opened the new research realms and identified the clear and measurable targets for the future empirical research in this field.