Abstract:
This study examined the effect of price level changes in tea and rubber industries to the volatility of Plantation
Sector Index (PSI) in Sri Lanka. Monthly data for 20 years (240 moths) from February 1996 to January 2016
were used as the sample. Fitted Autoregressive Conditional Heteroscedasticity (ARCH) and the Generalized
Autoregressive Conditional Heteroscedasticity (GARCH) were occupied for the analysis. Analysis contains two
parts. First part of the study analyzed the combine effect of price level changes in tea and rubber to the volatility
of PSI. While second part analyzed the individual effect towards PSI. Results for part one showed PSI made a
significance volatile due to price level changes of Tea and rubber. The second part indicated though the Tea and
Rubber prices were significant factors, they have totally different influences. Price changes of Tea industry
showed a negatively effect on volatility of PSI while rubber prices showed the positive effect.
