Modeling price volatility of Sarawak pepper / Jelani Razali

Agriculture commodity price has a history of high degree of volatility, which posed continuing economic problems for commodity dependent countries. The global fluctuation in the pepper price brings uncertainty in the income of the farmers involved. The pepper price volatility causes uncertainty to producers causing a mismatch between supply and demand. Price fluctuation encourages unhealthy speculation among exporters and importers causing market inefficiency. The above problem motivates the study in this area so that some solution can be obtained to resolve the problem encountered by the pepper producers. This thesis, studies the price volatility of Sarawak pepper price at Kuching and New York spot market from 1977 to 2013 with the main objectives of selecting the best fit model to model Sarawak price series at Kuching and New York spot markets and finally to determine the most accurate model used to forecast the pepper price series. This study analyses the pepper price volatility which is vital to understand the trend in the price cycle both at the domestic and international markets so that a well-planned and strategic marketing policy can be formulated to reduce the risks in the industry that will benefit the producers especially the small pepper farmers in the long run. ARIMA (1,1,1) model is a good model to model Sarawak black and white pepper at Kuching and New York spot markets. Unfortunately, this model failed to fulfill the white noise assumption which point to a higher order model to model all the four Sarawak pepper price series. The best fit model to capture the asymmetry effect and volatility persistence of Sarawak pepper price series black and white pepper at Kuching and New York spot market is the GARCH (1,1) model…