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The pass-through of macro variable to volatility co-movement among U.S. currency and commodity futures markets system

Author

Listed:
  • Dai, Xingyu
  • Yousaf, Imran
  • Wang, Jiqian
  • Wang, Qunwei
  • Lau, Chi Keung Marco

Abstract

This paper explores how the U.S. macro variable influences volatility co-movement in currency and commodity futures markets system. It does this by using the Dynamic Equicorrelation-Mixed Data Sampling-X model, and then calculating the daily realized volatility (RV), good volatility (GV), and bad volatility (BV) of 22 futures using 5-min high-frequency data. The Hodrick-Prescott filter method is applied to compute the raw, cycle, and trend components of the news for 17 macro variables and 4 principal components of these macro variables. There are three key study findings. First, the raw component of monetary policy uncertainty is the best fit for RV co-movement, while the raw component of trade policy uncertainty is the best fit for GV and BV co-movement. Second, almost all macro variables show that the trend component news do not affect volatility co-movement. Finally, the duration of the impact of macro variables exceeds 4 months, while the influence of raw news on BV co-movement is generally shorter. The macro variable information also helps currency and commodity futures investors to make global minimum variance portfolio optimization.

Suggested Citation

  • Dai, Xingyu & Yousaf, Imran & Wang, Jiqian & Wang, Qunwei & Lau, Chi Keung Marco, 2025. "The pass-through of macro variable to volatility co-movement among U.S. currency and commodity futures markets system," Journal of Commodity Markets, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:jocoma:v:38:y:2025:i:c:s2405851325000078
    DOI: 10.1016/j.jcomm.2025.100463
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    Keywords

    Macro variable; Currency futures; Commodity futures; Realized volatility; MIDAS; Dynamic equicorrelation;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • 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

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