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Analyzing the time-frequency lead–lag relationship between oil and agricultural commodities

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  • Tiwari, Aviral Kumar
  • Khalfaoui, Rabeh
  • Solarin, Sakiru Adebola
  • Shahbaz, Muhammad

Abstract

We analyze the time-frequency co-movement of and lead–lag relationship between price indices of oil and 21 agricultural commodities and attempt to identify the leader and follower among the considered price indices for the 1980M1–2017M5 period. The empirical analysis is conducted using four wavelet tools: wavelet coherency, phase-difference, multiple correlation and multiple cross-correlation. The first two tools are used to identify the time-frequency co-movement of and lead–lag relationship between price indices of oil and 21 agricultural commodities, and the third and fourth tools are used to identify the leader and follower among all series of price indices across different scales. Our results on wavelet coherency show a high degree of co-movement at a long-run horizon for the entire period between the price indices of oil and coal, cotton, fishmeal, maize, rice, rubber and wheat. Furthermore, the connection between these commodity markets and the oil market strengthened after 2000, indicating the importance of financial crisis phenomena and geopolitical turbulence. Additional findings show that short-run investors should invest in the beef and swine (pork) markets, as they have very little correlation with the oil markets. The results of multiple correlation and multiple cross-correlation analysis show that the coffee price was leader or follower across all time scales, except wavelet scale 16, where barely was a leader or a follower.

Suggested Citation

  • Tiwari, Aviral Kumar & Khalfaoui, Rabeh & Solarin, Sakiru Adebola & Shahbaz, Muhammad, 2018. "Analyzing the time-frequency lead–lag relationship between oil and agricultural commodities," Energy Economics, Elsevier, vol. 76(C), pages 470-494.
  • Handle: RePEc:eee:eneeco:v:76:y:2018:i:c:p:470-494
    DOI: 10.1016/j.eneco.2018.10.037
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    Cited by:

    1. Albulescu, Claudiu Tiberiu & Tiwari, Aviral Kumar & Ji, Qiang, 2020. "Copula-based local dependence among energy, agriculture and metal commodities markets," Energy, Elsevier, vol. 202(C).
    2. Claudiu Albulescu & Aviral Tiwari & Qiang Ji, 2020. "Copula-based local dependence between energy, agriculture and metal commodity markets," Papers 2003.04007, arXiv.org.
    3. Cheng, Sheng & Cao, Yan, 2019. "On the relation between global food and crude oil prices: An empirical investigation in a nonlinear framework," Energy Economics, Elsevier, vol. 81(C), pages 422-432.
    4. Eissa, Mohamad Abdelaziz & Al Refai, Hisham, 2019. "Modelling the symmetric and asymmetric relationships between oil prices and those of corn, barley, and rapeseed oil," Resources Policy, Elsevier, vol. 64(C).

    More about this item

    Keywords

    Oil price; Agricultural commodity; Wavelet analysis;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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