Research On The Impact Of Geopolitical Events On The Co-movement Between Major Grain Prices

Since the 21 st century,international geopolitical events in the form of war,terrorism and escalation of inter-state tensions have occurred frequently.These events not only affect the stable and safe development of world politics and economy,but also disrupt the flow of grain markets between countries,exacerbate global grain supply constraints and reshape the pattern of world grain production and trade.Moreover,after some major geopolitical events,there may be “cross-section” tail dependence and largescale “risk contagion” between grain markets.Therefore,by researching the dynamic correlation between the major grain future prices and the impact of geopolitical events on the linkage of grain prices,this paper tries to provide some theoretical basis and practical suggestions for the governments to formulate policies to stabilize grain prices,the upstream and downstream enterprises of the grain industry chain to diversify the risks and investors to stabilize the investment returns.This paper first summarized the mechanism of the interdependent relation between major grain varieties and the ways in which geopolitical events affected agricultural markets and prices,and then took the logarithmic yield datum of the closing prices of four agricultural futures continuous contracts of soybean,maize,wheat and rice on the Chicago Board of Trade as the research objects.The ARMA-GARCH model was used to depict the marginal distribution of each variety,and then the standardized residuals were extracted.The TVP-SJC-Copula model was established for the combination of the four kinds of futures yield series and the dynamic upper and lower tail correlation coefficients were calculated.Finally,six major geopolitical events were selected according to the Geopolitical Risk Index.Then Zou’s breakpoint test and nonlinear Granger causality test were used respectively to test whether these geopolitical events led to structural changes in the correlation between futures markets and whether nonlinear Granger causality changed.The empirical results show that the tail correlation between maize and wheat is the strongest,followed by soybean and maize,and there is only a weak correlation between rice and the other three agricultural products futures,which is related to the substitution effect and complementary effect among varieties.In addition,there is a consistency in the time of sudden changes in the co-movement between major grain prices.For example,"September 11 attacks" and Russia-Ukraine conflict lead to structural changes in the upper and lower tail correlation among multiple varieties.On the one hand,these events lead to changes in the price linkage between varieties by changing the supply and demand relationship of agricultural products.On the other hand,by changing the psychological expectations of enterprises and investors,the correlation between varieties will be impacted.Finally,after the occurrence of major geopolitical events,the non-linear Granger causality between varieties of agricultural products may change and this change will last for a period of time.This alter is related to the changes in the structure of agricultural markets,the prices of agricultural products and the substitution between agricultural products caused by geopolitical events.Finally,based on the empirical results and analysis,this paper puts forward three suggestions for policy makers to accurately grasp the direction of spillover effect between markets,for enterprises to diversify and avoid risks to varieties with strong correlation,and for investors to construct international diversified investment portfolios,so as to provide references for policy makers,enterprises and investors.