Asia is presently the most important market for the production and consumption of natural
rubber. World prices of rubber are not only subject to changes in demand, but also to
speculation regarding future markets. Japan and Singapore are the major futures markets
for rubber, while Thailand is one of the world's largest producers of rubber. As rubber
prices are influenced by external markets, it is important to analyse the relationship
between the relevant markets in Thailand, Japan and Singapore. The analysis is conducted
using several alternative multivariate GARCH models. The empirical results indicate that
the constant conditional correlations arising from the CCC model of Bollerslev (1990) lie
in the low to medium range. The results from the VARMA-GARCH model of Ling and
McAleer (2003) and the VARMA-AGARCH model of McAleer et al. (2009) suggest the
presence of volatility spillovers and asymmetric effects of positive and negative return
shocks on conditional volatility. Finally, the DCC model of Engle (2002) suggests that the
conditional correlations can vary dramatically over time. In general, the dynamic
conditional correlations in rubber spot and futures returns shocks can be independent or
interdependent. |