Range-Based Volatility Estimators for Monitoring Market Stress: Evidence from Local Food Price Data

TL;DR

This paper demonstrates how range-based volatility estimators applied to local food prices can effectively monitor market stress and disruptions across diverse development and conflict-affected settings.

Contribution

It adapts open-high-low-close volatility estimators for localized market monitoring, providing a robust tool for detecting market stress in various challenging contexts.

Findings

Elevated volatility correlates with insecurity, weather shocks, and trade disruptions.

OHLC volatility measures detect stress missed by traditional momentum indicators.

Volatility signals align with documented market disruption timelines.

Abstract

Range-based volatility estimators are widely used in financial econometrics to quantify risk and market stress, yet their application to local commodity markets remains limited. This paper shows how open-high--low-close (OHLC) volatility estimators can be adapted to monitor localized market distress across diverse development contexts, including conflict-affected settings, climate-exposed regions, remote and thinly traded markets, and import- and logistics-constrained urban hubs. Using monthly food price data from the World Bank's Real-Time Prices dataset, several volatility measures -- including the Parkinson, Garman-Klass, Rogers-Satchell, and Yang-Zhang estimators -- are constructed and evaluated against independently documented disruption timelines. Across settings, elevated volatility aligns with episodes linked to insecurity and market fragmentation, extreme weather and disaster shocks, policy and fuel-cost adjustments, and global supply-chain and trade disruptions. Volatility also detects stress that standard momentum indicators such as the relative strength index (RSI) can miss, including symmetric or rapidly reversing shocks in which offsetting supply and demand disturbances dampen net directional price movements while amplifying intra-period dispersion. Overall, OHLC-based volatility indicators provide a robust and interpretable signal of market disruptions and complement price-level monitoring for applications spanning financial risk, humanitarian early warning, and trade.