Determinants of price volatility in live cattle futures: insights from wavelet and VAR analyses

Machekanyanga, Takudzwa Wilson

Determinants of price volatility in live cattle futures: insights from wavelet and VAR analyses

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

This study investigates the dynamic relationships between price volatility in live cattle futures and key determinants, including speculation, hedging, grain futures returns, trading volume, and open interest, using a comprehensive multivariate framework. Employing daily data spanning from 2013 to 2023, the research integrates wavelet coherence analysis and vector autoregressive (VAR) modelling to capture both time-frequency correlations and linear interdependencies. Descriptive statistics reveal high variability in speculative activity and trading volumes, while hedging exhibits consistent negative returns, emphasising its risk- mitigation function. Wavelet coherence analysis highlights temporal shifts in relationships, with grain futures, particularly corn and wheat, exerting significant influence on volatility during periods of market stress. VAR results indicate that speculation Granger-causes volatility, supporting its dual role as both a stabiliser and amplifier of price fluctuations. Impulse response functions illustrate the persistent effects of shocks from trading volume and open interest on cattle futures, providing actionable guidance for market participants aiming to refine their risk management and trading strategies. The study contributes to the broader discourse on agricultural futures volatility and the financialisation of commodities, with implications for policy and market design.