A copula-based approach to investigate vertical shock price transmission in the italian hog market

Abstract

It is a stylized fact that the Italian farmers do not benefit of casual structure along value chain. Conversely, retailers could advantage of any positive shock price changes occurred in the wholesale supply chain. We investigate the presence of shock price vertical contagion in the Italian hog market, describing the dependence structure along the supply chain and assessing the degree of extreme value dependence. The approach followed is non linear and copula-based, applied on weekly data of hog price changes referred to Italian farm, wholesale and retail branch chain, over the period 1994-2015. In particular, the objective of the analysis consists in to obtain a measure of the relationship between extreme events of returns, estimating the tail dependence coefficients of copula functions involved in the analysis. The empirical findings highlight the asymmetry of price transmission along the hog Italian supply chain, more relevant for wholesale–retail pair.

Keywords

• copula model
• garch model.
• price transmission
• tail dependence
• value chain
• volatility