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Structure dependence between oil and agricultural commodities returns: The role of geopolitical risks

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  • Tiwari, Aviral Kumar
  • Boachie, Micheal Kofi
  • Suleman, Muhammed Tahir
  • Gupta, Rangan

Abstract

The link between energy and agricultural markets have been studied extensively in the last two decades. Nonetheless, the literature fails to consider the effects of geopolitical risks (GPRs), geopolitical risks due to acts and GPRs due to threats in studying the link between the two markets. Addressing these issues, we examine the dependence between crude oil prices and agricultural commodities (oats, corn, wheat and soybean) for a period starting from April 4, 1990, to February 15, 2019. Our study used copula-based techniques to study the co-movement. We find that strong co-movements between energy markets and agricultural markets, which are negatively influenced by GPRs. Hence, suggest the ability of agricultural commodities, particularly corn, oats and wheat, to act as a hedge against oil returns downturn resulting from geopolitical unrest. This evidence of hedging is further vindicated, when we observe that agricultural and oil markets are negatively correlated when the former is bullish and the latter bearish.

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  • Tiwari, Aviral Kumar & Boachie, Micheal Kofi & Suleman, Muhammed Tahir & Gupta, Rangan, 2021. "Structure dependence between oil and agricultural commodities returns: The role of geopolitical risks," Energy, Elsevier, vol. 219(C).
    • Handle: RePEc:eee:energy:v:219:y:2021:i:c:s0360544220326918
    DOI: 10.1016/j.energy.2020.119584
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    More about this item

    Keywords

    Oil; Agricultural commodities; Copula models; Geopolitical risks;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General

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