The hog industry, where prices are determined according to an auction system, is
of vital importance to the agricultural industry in Taiwan by providing significant
production and employment. In particular, there were significant impacts on daily hog
prices in the periods before, during and after joining the WTO, which we will refer to as
periods of anticipation, adjustment and settlement. The purpose of the paper is to model
the growth rates and volatility in daily hog prices in Taiwan from 23 March 1999 to 30
June 2007, which enables an analysis of the effects of joining the WTO. The paper
provides a novel application of financial volatility models to agricultural finance. The
empirical results have significant implications for risk management and policy
considerations in the agricultural industry in Taiwan, especially when significant
structural changes, such as joining the WTO, are concerned. The three sub-samples
relating to the period before, during and after joining the WTO display significantly
different volatility persistence, namely symmetry, asymmetry but not leverage, and
leverage, respectively, whereby negative shocks increase volatility but positive shocks of
a similar magnitude decrease volatility. |