Dependency of Palm Oil Price in Multiscale Period among Asean member: Application of Wavelet and Multivariate GARCH-DCC
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Abstract
The question of predictability of the palm oil price is far from conclusive (Md Nor, Sarmidi and Ehsan 2014). Any attempt to have better modelling accuracy in understanding the palm oil price behavior is a priority interest for many including producers, policy makers and economists especially in Malaysia which is one of the largest exporter in the world. The price of palm oil behavior among ASEAN member countries also indicate whether the market has symmetric respond to changes in information which an pivotal characteristics towards formation of the ASEAN Economic Community (AEC). From the literature, the existing modelling and forecasting cover only static and time-varying analysis. Another important aspect of estimation including scale-varying analysis is being left out. Neglecting scale-dependent analysis leads towards incomplete understanding how market is functioning. Particularly, by incorporating scale-varying, it is able to identify relationship behavior between price and volume in multiscale with short-, medium-, and long-span period. This research is a humble attempt to complement and add value to the existing estimation and forecasting procedures by proposing a technique to test the relationship witch incorporate the ‘scale-dependent’ and ‘time-varying’ volatilities and correlations of the sample commodities. We employ advanced econometrics techniques including Maximum Overlap Discrete Wavelet Transform (MODWT), Continuous Wavelet Transformation (CWT) and multivariate GARCH-DCC to investigate relationship between monthly palm oil CPO price and its edible oil competitor. The analysis starts from 1960 to present which covers period of commodity crisis, financial crisis and global economic crisis. The research output may shed light to questions 1) multiscale cross-correlation among edible oils and macroeconomic fundamentals, 2) palm oil price stability mechanism, and 3) weather AEC is moving on the right direction or otherwise.
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