Aggregation of Price Risk over Commodities; Case Study: Price Risk of Protein Products

The aggregated data of price risk over commodities is used inevitably in some empirical studies. The common approach to aggregating price risk is to calculate a variance of aggregate price risk index. However, this approach has no basis in index number theory. For example, a normal distribution that mean and variance change over time, these parameters are independent constructs and hence can evolve separately over time. In this study, using an extended theory of index numbers, aggregated price risk of proteins products was calculated in 1997-2008 periods. Results show that variance of aggregated price risk has weak correlation with correct indexes and hence cannot be used in empirical studies.