Crude Oil Volatility Transmission Across Food Commodity Markets: A Multivariate BEKK-GARCH Approach:
01 Aug 2021-Journal of Emerging Market Finance (SAGE PublicationsSage India: New Delhi, India)-Vol. 20, Iss: 2, pp 131-164
TL;DR: In this paper, the authors examined the time-varying price risk transmission in the nexus between crude oil and agricultural commodity prices in the context of non-grain-based biofuel producing country.
Abstract: This study examines the time-varying price risk transmission in the nexus between crude oil and agricultural commodity prices in the context of non-grain-based biofuel producing country. Analysis o...
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06 Oct 2021
TL;DR: In this paper, the authors investigated the volatility impact of crude oil and gold on interest rates and contributed to the existing literature with its findings, but there is no evidence of volatility spillover from gold and crude oil on the interest rates.
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.
8 citations
TL;DR: In this article , the authors examined the volatility spillover and lead-lag relationship between the Chicago Board Options Exchange volatility index (VIX) and the major agricultural future markets before and during the Coronavirus disease 2019 (COVID-19) outbreak.
Abstract:
Purpose
The purpose of this paper is to examine the volatility spillover and lead-lag relationship between the Chicago Board Options Exchange volatility index (VIX) and the major agricultural future markets before and during the Coronavirus disease 2019 (COVID-19) outbreak.
Design/methodology/approach
The methods used were the vector autoregression-Baba, Engle, Kraft and Kroner-generalized autoregressive conditional heteroskedasticity method, the Wald test and wavelet transform method.
Findings
The findings indicate that prior to the COVID-19 outbreak, there was a two-way volatility spillover impact between the majority of the sample markets. In comparison, volatility transmission between the VIX index and the agricultural future market was significantly lower following the COVID-19 outbreak, the authors observed greater coherence at higher frequencies than at lower frequencies, implying that the interdependence between the two VIX indices and the agricultural future market was stronger over a longer time-frequency domain and the VIX’s signalling effect on various agricultural future prices after the COVID-19 outbreak was significantly lower.
Originality/value
The authors conducted the first comprehensive investigation of the VIX’s correlation with major agricultural futures, especially during COVID-19. The findings contribute to a better understanding of the risk transmission mechanism between the VIX and major agricultural commodities futures contracts. And our findings have significant implications for investors and portfolio managers, as well as for policymakers who are concerned about the price of agricultural futures.
5 citations
TL;DR: In this paper, the authors investigated the interlinkage of gold markets and Vietnamese asset classes at multiple investment horizons using a hybrid wavelet-based VAR-GARCH-BEKK approach.
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...
4 citations
TL;DR: In this paper , the dependence and the directional predictability between eight major energy price returns, using the Cross-Quantilogram (CQ) and the Partial CQ (PCQ) analysis, were analyzed.
3 citations
TL;DR: In this article , the authors examined the integration of environmental, social and governance (ESG) equity indices among emerging markets, that is, Brazil, Russia, India, China and South Africa (BRICS).
Abstract: The current research examines the integration of environmental, social and governance (ESG) equity indices among emerging markets, that is, Brazil, Russia, India, China and South Africa (BRICS). Daily data of the ESG equity index from 1 January 2012 to 31 December 2021 are collected from Morgan Stanley Capital International (MSCI). The article employs Johansen’s co-integration test for long-term co-movement and Granger causality tests for causality among ESG equity indices. The study also used the BEKK model to investigate the volatility spillover among the ESG indices. Further, the study also calculated hedge ratios and portfolio weights. The results indicate that none of the ESG indices is co-integrated and short-run bi-directional causality exists across the four ESG indices. All the indices are significantly affected by their past shock and volatility. However, India’s ESG index is influenced by the past shock of South Africa and the past volatility of China. The findings suggest that the flow of information between the ESG indices of emerging countries is not developed yet to the point where they may be integrated into the BRICS countries. As a result, these sustainable equity indices must be promoted even more to become fully integrated.
3 citations
References
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TL;DR: In this paper, a new parameterization of the multivariate ARCH process is proposed and equivalence relations are discussed for the various ARCH parameterizations, and conditions suffcient to guarantee the positive deffniteness of the covariance matrices are developed.
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.
4,413 citations
"Crude Oil Volatility Transmission A..." refers methods in this paper
...Mostly, researchers have employed the BEKK-GARCH model proposed by Baba, Engle, Kraft and Kroner (1990) and put forward by Engle and Kroner (1995) (Gardebroek & Hernandez, 2013; Serra et al. 2011; Trujillo-Barrera et al., 2012; Wu & Li, 2013; Wu et al., 2011; Zhang et al., 2009) and the DCC-GARCH…...
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TL;DR: The authors compare the restrictions imposed by the four most popular multivariate GARCH models, and introduce a set of robust conditional moment tests to detect misspecification, and 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).
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.
1,310 citations
"Crude Oil Volatility Transmission A..." refers methods in this paper
...The conditional volatility from the VAR-BEKK-MGARCH model has been used to compute optimal portfolio weights to manage the risk of the investors (Kroner & Ng, 1998)....
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TL;DR: In this article, a bivariate error correction model with a GARCH error structure was proposed to estimate the risk-minimizing futures hedge ratios for several currencies and a dynamic hedging strategy was proposed in which the potential risk reduction is more than enough to offset the transactions costs for most investors.
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.
1,182 citations
"Crude Oil Volatility Transmission A..." refers methods in this paper
...Using the conditional volatility estimates, we compute the hedge ratios for different pairs of commodities under study to suggest that how the price risks can be managed in these commodities (Kroner & Sultan, 1993)....
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...Using the conditional volatility estimates, we compute the hedge ratios for different pairs of commodities to suggest that how the price risks can be managed in these commodities (Kroner & Sultan, 1993)....
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TL;DR: In this article, the role of demand growth, monetary expansion and exchange rate movements in explaining price movements over the period since 1971 has been investigated and it was shown that index-based investment in agricultural futures markets is the major channel through which macroeconomic and monetary factors generated the 2007-2008 food price rises.
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.
722 citations
"Crude Oil Volatility Transmission A..." refers result in this paper
...While most of the prior studies examine the price level interdependencies (Abbott et al., 2008; Baffes, 2007; Ciaian & Kancs, 2011; Gilbert, 2010; Harri et al., 2009; Hassouneh et al., 2012; Kristoufek et al., 2012; Pala, 2013; Reboredo, 2012; Tadesse et al., 2014; Wang et al., Thenmozhi and Maurya…...
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TL;DR: The authors assesses factors that potentially influence the volatility of crude oil prices and the possible linkage between this volatility and agricultural commodity markets, finding evidence of volatility spillover among crude oil, corn, and wheat markets after the fall of 2006.
485 citations