Wheat Price Volatility Over 140 Years: An Analysis of Daily Price Ranges

This paper analyzes daily wheat price volatility over an observation period of more than 140 years, using daily high and low prices of futures contracts traded at the Chicago Board of Trade (CBOT), starting in 1877. We find that volatility differences between the identified regimes is much more important than volatility differences within the regimes, even when conditioning on state variables such as business cycles or inflation. Our findings suggest that the neglect of regimes can lead to a severe misinterpretation of the results when volatilities are correlated with exogenous variables. Further, historical volatility estimates derived from average price data, as is typically done in literature, are upward biased. The bias ranges between 0% and 22% across regimes. The magnitude potentially explains contradictory findings on volatility patterns in earlier studies.