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Volatility spillover between oil and agricultural commodity markets

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  • Nazlioglu, Saban
  • Erdem, Cumhur
  • Soytas, Ugur

Abstract

This study examines volatility transmission between oil and selected agricultural commodity prices (wheat, corn, soybeans, and sugar). We apply the newly developed causality in variance test and impulse response functions to daily data from 01 January 1986 to 21 March 2011. In order to identify the impact of the food price crisis, the data are divided into two sub-periods: the pre-crisis period (01 January 1986 to 31 December 2005) and the post-crisis period (01 January 2006–21 March 2011). The variance causality test shows that while there is no risk transmission between oil and agricultural commodity markets in the pre-crisis period, oil market volatility spills on the agricultural markets —with the exception of sugar —in the post-crisis period. The impulse response analysis also indicates that a shock to oil price volatility is transmitted to agricultural markets only in the post-crisis period. This paper thereby shows that the dynamics of volatility transmission changes significantly following the food price crisis. After the crisis, risk transmission emerges as another dimension of the dynamic interrelationships between energy and agricultural markets.

Suggested Citation

  • Nazlioglu, Saban & Erdem, Cumhur & Soytas, Ugur, 2013. "Volatility spillover between oil and agricultural commodity markets," Energy Economics, Elsevier, vol. 36(C), pages 658-665.
  • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:658-665
    DOI: 10.1016/j.eneco.2012.11.009
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    References listed on IDEAS

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    Keywords

    Oil prices; Agricultural commodity prices; Volatility spillover;

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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