1 - Rodrigo Fernandes Malaquias UNIVERSIDADE FEDERAL DE UBERLÂNDIA (UFU) - FAGEN
2 - ERICA JUVERCINA SOBRINHO UNIVERSIDADE FEDERAL DE UBERLÂNDIA (UFU) - Faculdade de Gestão e Negócios
3 - Pablo Rogers UNIVERSIDADE FEDERAL DE UBERLÂNDIA (UFU) - Faculdade de Gestão e Negócios
4 - Ilirio josé Rech UNIVERSIDADE FEDERAL DE GOIÁS (UFG) - UFG Goiãnia
Reumo
Since many factors affect the volatility of commodities futures, there is a space for new studies to improve the understanding of their pricing (Imai, Gaiha, & Thapa, 2011). Commodity prices react to new information on the market, so disclosing information on production forecasting is important.
We expect to advance previous research by including the tone of crop reports in these analyses. Therefore, the main purpose of this research is to test the relationship between the positive tone of crop reports and the volatility of returns of soybean futures.
The literature has indicated that a decrease (increase) in the price of financial assets could be a result of negative (positive) sentiment (Omura & Todorova, 2019) after information processing. Crop reports published by public bodies are informative and affect the commodity futures markets, with a trend of greater impact at the time of announcement (Karali, Isengildina-Massa, Irwin, Adjemian, & Johansson, 2019; Ying et al., 2019; Isengildina-Massa et al., 2021). Therefore, investors can use some information from crop reports to trade.
In this paper, we use an ARCH-GARCH model (Poon, 2005) to test the effect of information available on crop reports on the conditional volatility of future contracts of soy. The sample period starts on April/2018 and ends in January/2022. For each month, we collected the crop report from CONAB. Using the KH Coder software, we calculated the number of sentences of each report containing positive and negative expressions; this list was based in previous research (Henry, 2008; Malaquias & Borges Júnior, 2021; Yekini et al., 2016). More than 200 concurrent models were evaluated.
The main results indicate that the tone of crop reports can improve the understanding of the volatility of soybean future contracts returns.
In line with the literature (Silveira, Mattos, & Saes, 2017; Karali, Isengildina-Massa, Irwin, Adjemian, & Johansson, 2019; Ying et al., 2019), our results suggest that the content of crop reports is relevant to understand volatility of soybean contracts returns in the one day around analysis, and our results indicate that the effect is stronger when we consider the positive tone of crop reports.
Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383-417.
Silveira, R. F. L., Mattos, F. L., & Saes, M. S. M. (2017). The Reaction of Coffee Futures Price Volatility to Crop Reports. Emerging Markets Finance and Trade, 53(10), 2361-2376.
Yekini, L. S., Wisniewski, T. P., & Millo, Y. (2016). Market reaction to the positiveness of annual report narratives. British Accounting Review, 48(4), 415-430.