Predicting Malaysian palm oil price using Extreme Value Theory

Author

Kantaporn Chuangchid, Songsak Sriboonchitta, Sanzidur Rahman(srahman@plymouth.ac.uk) and Aree Wiboonpongse

International Journal of Agricultural Management, 2013, vol. 02, issue 2

Abstract: This paper uses the extreme value theory (EVT) to predict extreme price events of Malaysian palm oil in the future, based on monthly futures price data for a 25 year period (mid-1986 to mid-2011). Model diagnostic has confirmed non-normal distribution of palm oil price data, thereby justifying the use of EVT. Two principal approaches to model extreme values – the Block Maxima (BM) and Peak-Over- Threshold (POT) models – were used. Both models revealed that the palm oil price will peak at an incremental rate in the next 5, 10, 25, 50 and 100 year periods. The price growth level in Year-5 is estimated at 17.6% and 44.6% in Year-100 using BM approach. Use of the POT approach indicated a growth rate of 37.6% in Year-5 and 50.8% in Year 100, respectively. The key conclusion is that although the POT model outperformed the BM model, both approaches are effective in providing predictions of growth in prices caused by extreme events. The results could serve as a useful guide to farmers, exporters, governments, and other stakeholders of the palm oil industry informing strategic planning for the future.

Keywords: Price forecasting; Extreme Value Theory; Block Maxima model; Peak-Over-Threshold model; Malaysian palm oil; Crop Production/Industries; Production Economics(search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://purl.umn.edu/164351 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ags:ijameu:164351

Access Statistics for this article

More articles in International Journal of Agricultural Management from  Institute of Agricultural Management, International Farm Management Association Contact information at EDIRC.
Series data maintained by AgEcon Search (aesearch@umn.edu).

For further details log on website :
http://econpapers.repec.org/article/agsijameu/164351.htm