Crude Oil Volatility Transmission Across Food Commodity Markets: A Multivariate BEKK-GARCH Approach:

Abstract: Crude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and price volatility effects of gold and crude oil market on interest rates in India.,This study finds the mutual and directional association of the volatility of gold, crude oil and interest rates in India. The bi-variate GARCH models (Diagonal VEC GARCH and BEKK GARCH) are applied on the sample data of gold price, crude oil price and yield (interest rate) gathered from November 30, 2015 to November 16, 2020 (weekly basis) to investigate the volatility association including the volatility spillover effect in the three markets.,The main findings of the study focus on having a long-term conditional correlation between gold and interest rates, but there is no evidence of volatility spillover from gold and crude oil on the interest rates. The findings of the study are of great importance especially to the policymakers, as they state that the fluctuations in prices of gold and crude oil do not adversely impact the interest rates in India. Therefore, the fluctuations in prices of gold and crude may generally impact the economy, but it has nothing to do with interest rate in particular. This implies that domestic and foreign investments in the country will not be affected by gold and crude oil that are largely driven by interest rates in the country.,Gold and crude oil are two very important commodities that have their importance not only for domestic affairs but also for international business. They veritably influence the economy including forex exchange for any nation. In addition to this, the researchers believe the findings will provide insights to policymakers, stakeholders and investors.,Gold and crude oil undoubtedly influence the exchange rates but their impact on the interest rates in an economy is not definite and remains ambiguous owing to the mixed findings of the studies. The lack of studies related to the impact of gold and crude oil on the interest rates, despite them being essentials for the health of any economy is the main motivation of this study. This study is novel as it investigates the volatility impact of crude oil and gold on interest rates and contributes to the existing literature with its findings.

Abstract: As the world’s largest exporter and second-largest importer, China has made exchange rate stability a top priority for its economic growth. With development over decades, however, China now holds excess dollar reserves that have suffered a huge paper loss because of quantitative easing in the United States. In this reality, China has been provoked into speeding RMB internationalization as a strategy to reduce the cost and get rid of the excessive dependence on the US dollar. Thus, this study attempts to investigate the volatility contagion effect and dynamic conditional correlation among four assets, namely China’s onshore exchange rate (CNY), China’s offshore exchange rate (CNH), China’s foreign exchange reserves (FER), and RMB internationalization level (RGI). Considering the huge changes before and after China’s “8.11” exchange rate reform in 2015, we separate the period of study into two sub-periods. The Diagonal BEKK-GARCH model is employed for this analysis. The results exhibit large GARCH effects and relatively low ARCH effects among all periods and evidence that, before August 2015, there was a weak contagion effect among them. However, after September 2015, the model validates a strengthened volatility contagion within CNY and CNH, CNY and RGI, and CNH and RGI. However, the contagion effect is weakened between FER and CNY, FER and CNH, and FER and RGI.

Abstract: This study investigates the interlinkage of gold markets and Vietnamese asset classes at multiple investment horizons using a hybrid wavelet-based VAR-GARCH-BEKK approach. The findings show that th...

Abstract: This paper presents theoretical results in the formulation and estimation of multivariate gen- eralized ARCH models within simultaneous equations systems. A new parameterization of the multivariate ARCH process is proposed and equivalence relations are discussed for the various ARCH parameterizations. Constraints suffcient to guarantee the positive deffniteness of the con- ditional covariance matrices are developed, and necessary and suffcient conditions for covariance stationarity are presented. Identifcation and maximum likelihood estimation of the parameters in the simultaneous equations context are also covered.

Abstract: Existing time-varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix. In this article we compare the restrictions imposed by the four most popular multivariate GARCH models, and introduce a set of robust conditional moment tests to detect misspecification. We demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices (like estimating the optimal hedge ratio or deriving the risk minimizing portfolio). We therefore introduce a general model which nests these four models and their natural 'asymmetric' extensions. The new model is applied to study the dynamic relation between large and small firm returns. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Abstract: Most research on hedging has disregarded both the long-run cointegrating relationship between financial assets and the dynamic nature of the distributions of the assets. This study argues that neglecting these affects the hedging performance of the existing models and proposes an alternative model that accounts for both of them. Using a bivariate error correction model with a GARCH error structure, the risk-minimizing futures hedge ratios for several currencies are estimated. Both within-sample comparisons and out-of-sample comparisons reveal that the proposed model provides greater risk reduction than the conventional models. Furthermore, a dynamic hedging strategy is proposed in which the potential risk reduction is more than enough to offset the transactions costs for most investors.

Abstract: Agricultural price booms are better explained by common factors than by market-specific factors such as supply shocks. A capital asset pricing model-type model shows why one should expect this and Granger causality analysis establishes the role of demand growth, monetary expansion and exchange rate movements in explaining price movements over the period since 1971. The demand for grains and oilseeds as biofuel feedstocks has been cited as the main cause of the price rise, but there is little direct evidence for this contention. Instead, index-based investment in agricultural futures markets is seen as the major channel through which macroeconomic and monetary factors generated the 2007–2008 food price rises.

Abstract: Preface : The temperature of the rhetoric in the food-versus-fuel debate has been rising right along with the prices of corn and oil. Farm Foundation is not about heat or fueling fires. Our mission is to be a catalyst for sound public policy by providing objective information to foster deeper understanding of the complex issues before the food system today. We commissioned this paper to provide a comprehensive, objective assessment of the forces driving food prices. In recent months, much has been written in the academic and popular press about commodity prices, biofuels and food prices—often with varying perspectives and conclusions. Farm Foundation asked Wallace Tyner, Philip Abbot and Christopher Hurt, all of Purdue University, to review the literature and provide a comprehensive assessment of the forces driving food prices today. The three economists reviewed more than two dozen reports and studies, summarizing them in light of their own examination of the facts. As is true of many issues in the food system, the full story behind rapid increases in food prices is not a simple one. Today’s food price levels are the result of complex interactions among multiple factors—including crude oil prices, exchange rates, growing demand for food and slowing growth in agricultural productivity—as well as the agricultural, energy and trade policy choices made by nations of the world. But one simple fact stands out: economic growth and rising human aspirations are putting ever greater pressure on the global resource base. The difficult challenge for public and private leaders is to identify policy choices that help the world deal with the very real problems created by today’s rising food prices without jeopardizing aspirations for the future. It is the intent of Farm Foundation that the objective information provided in this report will help all stakeholders meet the challenge to address one of the most critical public policy issues facing the world today.