The risk‒return trade-off is a fundamental relationship that has received a large amount of attention in financial and economic analysis. Indeed, it has important implications for understanding linear dynamics in price returns and active quantitative portfolio optimization. The main contributions of this work include, firstly, examining such a relationship in five major fertilizer markets through different time periods: a period of low variability in returns and a period of high variability such as that during which the recent global financial crisis occurred. Secondly, we explore how entropy in those markets varies during the investigated time periods. This requires us to assess their inherent informational dynamics. The empirical results show that higher volatility is associated with a larger return in diammonium phosphate, potassium chloride, triple super phosphate, and urea market, but not rock phosphate. In addition, the magnitude of this relationship is low during a period of high variability. It is concluded that key statistical patterns of return and the relationship between return and volatility are affected during high variability periods. Our findings indicate that entropy in return and volatility series of each fertilizer market increase significantly during time periods of high variability.
Keywords: EGARCH-M; entropy; fertilizer market; global financial crisis; informational dynamics; risk‒return trade-off.