The effects of dollar-sterling exchange rate volatility on futures markets for coffee and cocoa

The paper uses multivariate autoregressive conditional heteroscedasticity models to investigate the effect of dollar-sterling exchange rate fluctuations on coffee and cocoa futures prices on the London LIFFE and the New York CSCE. For both commodities and in both markets, the exchange rate emerges as a main source of risk for the commodity futures price. We find that the commodities show similarities not only in their long-run features and first-order shock propagation, but also in their characteristics of volatility propagation. Copyright 2001, Oxford University Press.