AUTHORS: S. A. David, C. M. I. Cassela Jr., D. D. Quintino

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ABSTRACT: This paper examines the Brazilian ethanol pricing mechanism. Brazil is one of the world's largest producers of ethanol, an energy commodity. The analysis of the ethanol price behaviour, among other commodities, has an important and increasing role in the international financial markets due to the effects between the equity patterns and their volatility. In this work, we analyze the price series of the Brazilian ethanol by means of the Auto Regressive Integrated Moving Average (ARIMA) and Auto Regressive Fractionally Integrated Moving Average (ARFIMA) models for obtaining the spot price composition and future price prediction. The data series goes from 01/25/2010 to 12/31/2015. The ARFIMA process is a known class of long memory model, being a generalization of the ARIMA algorithm. We compare the performances of the ARIMA and the ARFIMA models. Besides, an analysis is made in order to observe the relationship between ethanol spot and futures prices in Brazil. We adopted the Engle and Granger co-integration approach and the method proposed by Hasbrouck in order to examine the market efficiency in price discovery and information transmission. Results show that the futures market is efficient in price discovery and information transmission. Furthermore, the results suggest that the Brazil's ethanol price series is covariance stationary but meanreverting, is more volatile than a random walk series

KEYWORDS: Ethanol; time series; fractional modeling; computer modeling and simulation; fractional statistic systems; business

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