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, the evolving links between energy and agricultural commodity prices were discussed, and the drivers in these markets as well as other major issues facing the corn ethanol industry in the United States such as the blend wall.
144 citations
"Crude Oil Volatility Transmission A..." refers background in this paper
...Energy is a crucial input for agriculture in all stages of the supply chain through both input and output costs (Barerra et al., 2011; Tyner, 2010)....
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TL;DR: In this article, the authors analyzed recent volatility spillovers in the United States from crude oil using futures prices and found that crude oil spillovers to both corn and ethanol markets are somewhat similar in timing and magnitude, but moderately stronger to the ethanol market.
Abstract: This article analyzes recent volatility spillovers in the United States from crude oil using futures prices. Crude oil spillovers to both corn and ethanol markets are somewhat similar in timing and magnitude, but moderately stronger to the ethanol market. The shares of corn and ethanol price variability directly attributed to volatility in the crude oil market are generally between 10%- 20%, but reached nearly 45% during the financial crisis, when world demand for oil changed dramatically. Volatility transmission is also found from the corn to the ethanol market, but not the opposite. The findings provide insights into the extent of volatility linkages among energy and agricultural markets in a period characterized by strong price variability and significant production of corn-based ethanol. Key words: biofuels, corn, crude oil, energy-agricultural co-movements, ethanol, multivariate GARCH, volatility spillovers
139 citations
"Crude Oil Volatility Transmission A..." refers background or methods in this paper
...…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 model defined by Engle (2002) (Busse et al.,…...
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...Specifically, Indian crude oil spot prices surged by 28 percent from September, 2011 to September, 2012.1 During the same time, spot prices of Indian wheat, soybean and maize rose by 32 percent, 81 percent and 26 percent,2 respectively, may be due to the food policy and EXIM policy changes in India and global factors such as E.U. debt crisis, drought in the United States, turbulence in global oil markets, etc....
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...For instance, the United States uses corn for producing ethanol and soybean for biodiesel; Brazil uses sugar for producing ethanol; China uses wheat, corn, sweet sorghum and cassava for producing ethanol....
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...There are limited studies that examine the volatility transmission in crude oil and agricultural commodity futures prices in the United States (Du & McPhail, 2012; Du et al., 2011) and in the World market (Chen et al., 2010)....
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...Trujillo-Barrera et al. (2012) document price transmission from crude oil to corn and ethanol and volatility spillover from corn to ethanol....
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TL;DR: In this paper, the effect of global oil price shocks on agricultural commodities in China, including strong wheat, corn, soybean, bean pulp, cotton and natural rubber, was studied.
130 citations
"Crude Oil Volatility Transmission A..." refers background in this paper
...Zhang and Qu (2015) document that crude oil shocks affect cash crops (soybean, bean pulp, cotton and natural rubber) more than food crops (wheat and corn) in China....
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TL;DR: In this article, a new cross-hedging strategy for managing corn price risk using oil futures is examined and its performance is studied, and it is shown that this strategy provides only slightly better hedging performance compared with traditional hedging in corn futures markets alone.
Abstract: Using a volatility spillover model, we find evidence of significant spillovers from crude oil prices to corn cash and futures prices, and that these spillover effects are time-varying. Results reveal that corn markets have become much more connected to crude oil markets after the introduction of the Energy Policy Act of 2005. Furthermore, when the ethanol–gasoline consumption ratio exceeds a critical level, crude oil prices transmit positive volatility spillovers into corn prices and movements in corn prices are more energy-driven. Based on this strong volatility link between crude oil and corn prices, a new cross-hedging strategy for managing corn price risk using oil futures is examined and its performance is studied. Results show that this cross-hedging strategy provides only slightly better hedging performance compared with traditional hedging in corn futures markets alone. The implication is that hedging corn price risk in corn futures markets alone can still provide relatively satisfactory performance in the biofuel era. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark
121 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 model defined by Engle (2002) (Busse et al....
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TL;DR: In this paper, the authors explored the relationship between real oil price and real gold price over a period of 1990 April to 2013 August and found that a 10% increase in the oil price returns to 4.7% increase of gold and shocks to gold price have an asymmetric effect.
99 citations
"Crude Oil Volatility Transmission A..." refers background in this paper
...While extant literature has focused on spot cross commodity price nexus, few researchers have studied the cross-commodity futures price behavior (Sensoy et al., 2015; Tiwari & Sahadudheen, 2015; Todorova et al., 2014)....
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