IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v9y2017i6p1071-d101981.html
   My bibliography  Save this article

Volatility Spillover between Water, Energy and Food

Author

Listed:
  • Massimo Peri

    (Department of Economics, Management and Quantitative Methods, University of Milan, 20122 Milan, Italy)

  • Daniela Vandone

    (Department of Economics, Management and Quantitative Methods, University of Milan, 20122 Milan, Italy)

  • Lucia Baldi

    (Department of Food, Environmental and Nutritional Sciences, University of Milan, 20133 Milan, Italy)

Abstract

Water, energy, and food and are strongly interconnected, and the sustainability of the whole world depends on this link. The aim of this article is to analyze the volatility spillovers between indexes representing the financial component of this nexus. We use a multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model with daily data in which the water variable is proxy by equity index that represents the performance of the industry involved in water business both at the global and local levels. For the food and energy sectors, we use two sub-indexes of the S&P Goldman Sachs (GS)-Commodity Index. Our results highlight the existence of a financial nexus between water, energy, and food that was particularly exacerbated during 2008 crisis. Evidence therefore suggests the need to better investigate the policy options that can be used to reduce price volatility in a framework of the rising relevance of sustainability issues.

Suggested Citation

  • Massimo Peri & Daniela Vandone & Lucia Baldi, 2017. "Volatility Spillover between Water, Energy and Food," Sustainability, MDPI, vol. 9(6), pages 1-16, June.
    • Handle: RePEc:gam:jsusta:v:9:y:2017:i:6:p:1071-:d:101981
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/9/6/1071/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/9/6/1071/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ling, Shiqing & McAleer, Michael, 2003. "Asymptotic Theory For A Vector Arma-Garch Model," Econometric Theory, Cambridge University Press, vol. 19(2), pages 280-310, April.
    2. Mark Howells & Sebastian Hermann & Manuel Welsch & Morgan Bazilian & Rebecka Segerström & Thomas Alfstad & Dolf Gielen & Holger Rogner & Guenther Fischer & Harrij van Velthuizen & David Wiberg & Charl, 2013. "Integrated analysis of climate change, land-use, energy and water strategies," Nature Climate Change, Nature, vol. 3(7), pages 621-626, July.
    3. Massimiliano Caporin & Michael McAleer, 2012. "Do We Really Need Both Bekk And Dcc? A Tale Of Two Multivariate Garch Models," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 736-751, September.
    4. Brennan, Donna C., 2006. "Water policy reform in Australia: lessons from the Victorian seasonal water market," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-21, September.
    5. Martin Keulertz & Eckart Woertz, 2015. "Financial challenges of the nexus: pathways for investment in water, energy and agriculture in the Arab world," International Journal of Water Resources Development, Taylor & Francis Journals, vol. 31(3), pages 312-325, September.
    6. Lanza, Alessandro & Manera, Matteo & McAleer, Michael, 2006. "Modeling dynamic conditional correlations in WTI oil forward and futures returns," Finance Research Letters, Elsevier, vol. 3(2), pages 114-132, June.
    7. Massimo Peri & Lucia Baldi & Daniela Vandone, 2013. "Price discovery in commodity markets," Applied Economics Letters, Taylor & Francis Journals, vol. 20(4), pages 397-403, March.
    8. Sadorsky, Perry, 2012. "Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies," Energy Economics, Elsevier, vol. 34(1), pages 248-255.
    9. Paarlberg, Robert, 2013. "Food Politics: What Everyone Needs to Know," OUP Catalogue, Oxford University Press, number 9780199322381.
    10. Massimo PERI & Daniela VANDONE & Lucia BALDI, 2012. "Internet, noise trading and commodity prices," Departmental Working Papers 2012-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    11. Silvennoinen, Annastiina & Thorp, Susan, 2013. "Financialization, crisis and commodity correlation dynamics," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 42-65.
    12. Kym Anderson & Anna Strutt, 2014. "Emerging economies, productivity growth and trade with resource-rich economies by 2030," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(4), pages 590-606, October.
    13. Wheeler, Sarah Ann & Bjornlund, Henning & Shanahan, Martin & Zuo, Alec, 2008. "Price elasticity of water allocations demand in the Goulburn–Murray Irrigation District," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(1), pages 1-19.
    14. Hammoudeh, Shawkat & Liu, Tengdong & Chang, Chia-Lin & McAleer, Michael, 2013. "Risk spillovers in oil-related CDS, stock and credit markets," Energy Economics, Elsevier, vol. 36(C), pages 526-535.
    15. Donna Brennan, 2006. "Water policy reform in Australia: lessons from the Victorian seasonal water market ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 403-423, September.
    16. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
    17. Hammoudeh, Shawkat M. & Yuan, Yuan & McAleer, Michael, 2009. "Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 829-842, August.
    18. Khan, S. & Khan, M.A. & Hanjra, M.A. & Mu, J., 2009. "Pathways to reduce the environmental footprints of water and energy inputs in food production," Food Policy, Elsevier, vol. 34(2), pages 141-149, April.
    19. Zhang, Wei & Yu, Elaine A. & Rozelle, Scott & Yang, Jun & Msangi, Siwa, 2013. "The impact of biofuel growth on agriculture: Why is the range of estimates so wide?," Food Policy, Elsevier, vol. 38(C), pages 227-239.
    20. Rio Carrillo, Anna Mercè & Frei, Christoph, 2009. "Water: A key resource in energy production," Energy Policy, Elsevier, vol. 37(11), pages 4303-4312, November.
    21. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    22. Tony Allan & Martin Keulertz & Eckart Woertz, 2015. "The water-food-energy nexus: an introduction to nexus concepts and some conceptual and operational problems," International Journal of Water Resources Development, Taylor & Francis Journals, vol. 31(3), pages 301-311, September.
    23. Luc Bauwens & Sébastien Laurent & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109, January.
    24. Unknown, 2016. "Water Energy and Food Security Nexus," Conference Proceedings 253272, Guru Arjan Dev Institute of Development Studies (IDSAsr).
    25. Bazilian, Morgan & Rogner, Holger & Howells, Mark & Hermann, Sebastian & Arent, Douglas & Gielen, Dolf & Steduto, Pasquale & Mueller, Alexander & Komor, Paul & Tol, Richard S.J. & Yumkella, Kandeh K., 2011. "Considering the energy, water and food nexus: Towards an integrated modelling approach," Energy Policy, Elsevier, vol. 39(12), pages 7896-7906.
    26. Guijun Li & Daohan Huang & Yulong Li, 2016. "China’s Input-Output Efficiency of Water-Energy-Food Nexus Based on the Data Envelopment Analysis (DEA) Model," Sustainability, MDPI, vol. 8(9), pages 1-16, September.
    27. Liang, Sai & Zhang, Tianzhu, 2011. "Interactions of energy technology development and new energy exploitation with water technology development in China," Energy, Elsevier, vol. 36(12), pages 6960-6966.
    28. Peri, Massimo & Baldi, Lucia, 2010. "Vegetable oil market and biofuel policy: An asymmetric cointegration approach," Energy Economics, Elsevier, vol. 32(3), pages 687-693, May.
    29. Daskalaki, Charoula & Skiadopoulos, George, 2011. "Should investors include commodities in their portfolios after all? New evidence," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2606-2626, October.
    30. Peri, Massimo & Vandone, Daniela & Baldi, Lucia, 2014. "Internet, noise trading and commodity futures prices," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 82-89.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rajibur Reza & Gurudeo Anand Tularam & Xiyang Li & Bin Li, 2022. "Investments in the Asian water sector: an analysis based on the DCC-GARCH model," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.
    2. Adrian Ioan Felea & Ioan Felea & Calin Radu Hoble, 2023. "Multicriteria Quantification of the Compatibility of the Targets from Romania’s Relevant Strategies with the European Green Deal," Sustainability, MDPI, vol. 15(18), pages 1-14, September.
    3. Reza, Rajibur & Tularam, Gurudeo Anand & Li, Bin, 2021. "A review of global research on private investment in the water sector," Utilities Policy, Elsevier, vol. 72(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peri, M. & Vandone, D. & Baldi, L., 2015. "Volatility Spillover between Water, Food and Energy," 2015 Conference, August 9-14, 2015, Milan, Italy 212627, International Association of Agricultural Economists.
    2. Aboura, Sofiane & Chevallier, Julien, 2015. "Volatility returns with vengeance: Financial markets vs. commodities," Research in International Business and Finance, Elsevier, vol. 33(C), pages 334-354.
    3. Dey, Shubhasis & Sampath, Aravind, 2018. "Dynamic linkages between gold and equity prices: Evidence from Indian financial services and information technology companies," Finance Research Letters, Elsevier, vol. 25(C), pages 41-46.
    4. Mensi, Walid & Beljid, Makram & Boubaker, Adel & Managi, Shunsuke, 2013. "Correlations and volatility spillovers across commodity and stock markets: Linking energies, food, and gold," Economic Modelling, Elsevier, vol. 32(C), pages 15-22.
    5. repec:dau:papers:123456789/13359 is not listed on IDEAS
    6. Basher, Syed Abul & Sadorsky, Perry, 2016. "Hedging emerging market stock prices with oil, gold, VIX, and bonds: A comparison between DCC, ADCC and GO-GARCH," Energy Economics, Elsevier, vol. 54(C), pages 235-247.
    7. Syriopoulos, Theodore & Makram, Beljid & Boubaker, Adel, 2015. "Stock market volatility spillovers and portfolio hedging: BRICS and the financial crisis," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 7-18.
    8. Pedersen, Rasmus Søndergaard, 2016. "Targeting Estimation Of Ccc-Garch Models With Infinite Fourth Moments," Econometric Theory, Cambridge University Press, vol. 32(2), pages 498-531, April.
    9. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2010. "Analyzing and forecasting volatility spillovers, asymmetries and hedging in major oil markets," Energy Economics, Elsevier, vol. 32(6), pages 1445-1455, November.
    10. Imran Yousaf & Shoaib Ali & Wing-Keung Wong, 2020. "An Empirical Analysis of the Volatility Spillover Effect between World-Leading and the Asian Stock Markets: Implications for Portfolio Management," JRFM, MDPI, vol. 13(10), pages 1-28, September.
    11. Charlot, Philippe & Darné, Olivier & Moussa, Zakaria, 2016. "Commodity returns co-movements: Fundamentals or “style” effect?," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 130-160.
    12. Eli Bouri & Andre Eid & Imad Kachacha, 2014. "The Dynamic Behaviour and Determinants of Linkages among Middle Eastern and North African Stock Exchanges," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 1-22, March.
    13. Massimiliano Caporin & Michael McAleer, 2010. "Ranking Multivariate GARCH Models by Problem Dimension," CARF F-Series CARF-F-219, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    14. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2013. "Conditional correlations and volatility spillovers between crude oil and stock index returns," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 116-138.
    15. Massimiliano Caporin & Michael McAleer, 2013. "Ten Things You Should Know About DCC," Documentos de Trabajo del ICAE 2013-12, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    16. Chen, Yufeng & Zheng, Biao & Qu, Fang, 2020. "Modeling the nexus of crude oil, new energy and rare earth in China: An asymmetric VAR-BEKK (DCC)-GARCH approach," Resources Policy, Elsevier, vol. 65(C).
    17. Ngene, Geoffrey & Post, Jordin A. & Mungai, Ann N., 2018. "Volatility and shock interactions and risk management implications: Evidence from the U.S. and frontier markets," Emerging Markets Review, Elsevier, vol. 37(C), pages 181-198.
    18. El Hedi Arouri, Mohamed & Lahiani, Amine & Nguyen, Duc Khuong, 2015. "World gold prices and stock returns in China: Insights for hedging and diversification strategies," Economic Modelling, Elsevier, vol. 44(C), pages 273-282.
    19. Raza, Naveed & Ali, Sajid & Shahzad, Syed Jawad Hussain & Raza, Syed Ali, 2018. "Do commodities effectively hedge real estate risk? A multi-scale asymmetric DCC approach," Resources Policy, Elsevier, vol. 57(C), pages 10-29.
    20. Dahiru A. Balaa & Taro Takimotob, 2017. "Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(1), pages 25-48, March.
    21. Massimo PERI & Daniela VANDONE & Lucia BALDI, 2014. "Water, Food, Energy: Searching for the Economic Nexus," Departmental Working Papers 2014-03, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:9:y:2017:i:6:p:1071-:d:101981. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.