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Exploring the time-frequency connectedness and network among crude oil and agriculture commodities V1

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  • Kang, Sang Hoon
  • Tiwari, Aviral Kumar
  • Albulescu, Claudiu Tiberiu
  • Yoon, Seong-Min

Abstract

We examine the frequency domain connectedness among international crude oil and agriculture commodities, covering the period of 1990M1-2017M5. The frequency domain connectedness is examined at three frequencies, which roughly correspond to one to six months, six to twelve months, and a period of more than twelve months. We also use a network based on pairwise correlations and a net directional matrix generated from the frequency domain spillover method. We show that the vegetable oils are the most influential price volatility source for the other agriculture commodities, such as dairy, cereals, meat and sugar, but also for the crude oil. In addition, we find a bi-directional and asymmetric connectedness between oil and agriculture commodity markets at all different frequency bands. These findings validate the preliminary results we obtain using a rolling-based bootstrap time-varying Granger causality analysis but provide additional insights as they allow to see the direction and the strength of the volatility at different frequencies. Our findings provide novel information about the production cost channel describing the relationship between oil and agriculture commodity markets. In addition, from the financialization perspective, our results show that agriculture commodity may provide portfolio diversification benefits especially in the short run.

Suggested Citation

  • Kang, Sang Hoon & Tiwari, Aviral Kumar & Albulescu, Claudiu Tiberiu & Yoon, Seong-Min, 2019. "Exploring the time-frequency connectedness and network among crude oil and agriculture commodities V1," Energy Economics, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:eneeco:v:84:y:2019:i:c:s014098831930338x
    DOI: 10.1016/j.eneco.2019.104543
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    More about this item

    Keywords

    Oil and; Agriculture commodity market; Prices connectedness; Frequency domain spillover; Network analysis;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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