Price Volatility Dynamics in Major Indian Oil Palm Markets: Evidence from ARCH-GARCH Models

Abstract

Price volatility affects income stability, investment decisions, market efficiency, and the reliability of market signals in agricultural value chains. This study examined the persistence of wholesale oil palm price volatility in two major Indian markets, Eluru in Andhra Pradesh and Khammam in Telangana. Monthly wholesale price data covering January 2008 to December 2023 were analysed. Stationarity was assessed using the augmented Dickey–Fuller test, and the presence of conditional heteroscedasticity was examined using the ARCH–Lagrange multiplier test. After confirming ARCH effects, autoregressive specifications with different lag lengths were compared using the Akaike and Schwarz information criteria. An AR(1)-GARCH(1,1) framework was selected for both markets to capture volatility clustering and estimate the persistence of price shocks. The ARCH-LM results indicated conditional heteroscedasticity in the price series of both markets. The estimated ARCH and GARCH coefficients produced persistence values of 0.94 for Eluru and 0.85 for Khammam. These values indicate high volatility persistence in both markets, with shocks dissipating more slowly in Eluru than in Khammam. The findings suggest that market participants may continue to face uncertainty after price disturbances. Strengthened market-information systems, timely dissemination of price information, and carefully designed price-risk management measures may support more stable market decisions. Further research should include additional markets, relevant market and institutional variables, structural breaks, seasonal patterns, and symmetric and asymmetric volatility specifications.