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Commodity tail-risk and exchange rates

Author

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  • Bondatti, Massimiliano
  • Rillo, Giovanni

Abstract

This paper studies the downside tail-risk relationship between currencies and commodities. In order to do so, we use the novel MCoVaR with Elastic-Net of Bonaccolto et al. (2021) to simultaneously account for the potential ties among a large set of commodities. We show that exchange rates are significantly exposed to downside tail-risk with respect to several commodities, including, but not limited to, oil and gold. Additionally, we find that different exchange rates are vulnerable to tail-risk in different commodities. Lastly, the results with respect to gold indicate that the Japanese yen and the Swiss franc can be considered safe-haven assets.

Suggested Citation

  • Bondatti, Massimiliano & Rillo, Giovanni, 2022. "Commodity tail-risk and exchange rates," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612322001994
    DOI: 10.1016/j.frl.2022.102937
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rates; Commodity prices; Tail-risk; CoVaR; Elastic-Net;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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