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Hedging geopolitical risks with diverse commodities

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  • Parnes, Dror
  • Parnes, Sapir S.

Abstract

We examine the relations between geopolitical risks and 14 different commodity future contracts, purposely selected from diverse classes (precious metals including gold, silver, and platinum, industrial metals including copper and aluminum, energy resources including crude oil and natural gas, grains including wheat, sugar, corn, soybeans, and coffee, livestock including live cattle, and wood products including lumber) and two popular commodity future indices (S&P GSCI and CRB), from 2000 until the end of 2023. This topical time period is recognized as somewhat intense and ample with geopolitical risks, events, and threats. We find a plethora of relationships along the respective returns (discrete and continuous) and volatilities (intra-day representing short-term and two-week denoting mid-term). We conclude that, by using either long or short positions in some of these commodity future contracts and composite indices, investors can hedge geopolitical hazards and construct safe haven strategies. We also identify some associations to contango and backwardation cycles and document that the information content embedded in worldwide geopolitical risks, actual events, and threats stretches up to a four-day range. Our empirical findings have further policy implications for financial institutions.

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  • Parnes, Dror & Parnes, Sapir S., 2025. "Hedging geopolitical risks with diverse commodities," International Review of Financial Analysis, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finana:v:102:y:2025:i:c:s1057521925002169
    DOI: 10.1016/j.irfa.2025.104129
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    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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