IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v95y2024ics1059056024004842.html
   My bibliography  Save this article

Contagion effect between fuel fossil energies and agricultural commodity markets and portfolio management implications

Author

Listed:
  • Ahmadian-Yazdi, Farzaneh
  • Roudari, Soheil
  • Omidi, Vahid
  • Mensi, Walid
  • Al-Yahyaee, Khamis Hamed

Abstract

This study investigates the dynamic spillover effects between fossil fuels (Brent oil and natural gas) and major agricultural markets (maize, soybeans, and wheat) using a time-varying parameter vector autoregression (TVP-VAR) model. Additionally, we quantify the cumulative return of the investment portfolio, optimal weights, time-varying risk coverage, and hedging effectiveness of bivariate commodity portfolios using the Minimum Variance Portfolio (MVP), Minimum Correlation Portfolio (MCP), Minimum Connectedness Portfolio (MCoP) under bearish, tranquil, and bullish market conditions. The results show that maize and natural gas are the main net receivers of spillovers, whereas wheat and Brent oil are the main net transmitters of shocks to the network, respectively. Our findings of optimal weights in multivariate portfolio suggest more weights for agri-commodities against fossil fuels in all three modes of market. In addition, the optimal weights of bivariate portfolio analysis show that the most optimal portfolio which has the highest HE value is related to natural gas pairs with agri-commodities. Moreover, depending on the status of the market; in an average and bearish modes, the highest optimal weight is related to maize/natural gas. However, in the bullish market, the highest optimal weights are related to natural gas/Brent oil pair. Furthermore, the results of optimal bivariate hedge ratios show that natural gas/wheat (wheat/maize and vice versa) portfolio is the cheapest (the most expensive) investment strategy in all modes of market and based on MVP and MCoP approaches.

Suggested Citation

  • Ahmadian-Yazdi, Farzaneh & Roudari, Soheil & Omidi, Vahid & Mensi, Walid & Al-Yahyaee, Khamis Hamed, 2024. "Contagion effect between fuel fossil energies and agricultural commodity markets and portfolio management implications," International Review of Economics & Finance, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:reveco:v:95:y:2024:i:c:s1059056024004842
    DOI: 10.1016/j.iref.2024.103492
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056024004842
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2024.103492?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chatziantoniou, Ioannis & Gabauer, David, 2021. "EMU risk-synchronisation and financial fragility through the prism of dynamic connectedness," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 1-14.
    2. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    3. Sun, Yunpeng & Gao, Pengpeng & Raza, Syed Ali & Shah, Nida & Sharif, Arshian, 2023. "The asymmetric effects of oil price shocks on the world food prices: Fresh evidence from quantile-on-quantile regression approach," Energy, Elsevier, vol. 270(C).
    4. Gabauer, David, 2021. "Dynamic measures of asymmetric & pairwise connectedness within an optimal currency area: Evidence from the ERM I system," Journal of Multinational Financial Management, Elsevier, vol. 60(C).
    5. Zhang, Dayong & Broadstock, David C., 2020. "Global financial crisis and rising connectedness in the international commodity markets," International Review of Financial Analysis, Elsevier, vol. 68(C).
    6. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    7. Furuoka, Fumitaka & Yaya, OlaOluwa Simon & Ling, Pui Kiew & Al-Faryan, Mamdouh Abdulaziz Saleh & Islam, M. Nazmul, 2023. "Transmission of risks between energy and agricultural commodities: Frequency time-varying VAR, asymmetry and portfolio management," Resources Policy, Elsevier, vol. 81(C).
    8. Chishti, Muhammad Zubair & Khalid, Ali Awais & Sana, Moniba, 2023. "Conflict vs sustainability of global energy, agricultural and metal markets: A lesson from Ukraine-Russia war," Resources Policy, Elsevier, vol. 84(C).
    9. David C. Broadstock & Ioannis Chatziantoniou & David Gabauer, 2022. "Minimum Connectedness Portfolios and the Market for Green Bonds: Advocating Socially Responsible Investment (SRI) Activity," Springer Books, in: Christos Floros & Ioannis Chatziantoniou (ed.), Applications in Energy Finance, chapter 0, pages 217-253, Springer.
    10. Li, Li, 2023. "Commodity prices volatility and economic growth: Empirical evidence from natural resources industries of China," Resources Policy, Elsevier, vol. 80(C).
    11. Zaremba, Adam & Umar, Zaghum & Mikutowski, Mateusz, 2019. "Inflation hedging with commodities: A wavelet analysis of seven centuries worth of data," Economics Letters, Elsevier, vol. 181(C), pages 90-94.
    12. Zhou, Xiaoran & Enilov, Martin & Parhi, Mamata, 2024. "Does oil spin the commodity wheel? Quantile connectedness with a common factor error structure across energy and agricultural markets," Energy Economics, Elsevier, vol. 132(C).
    13. Ederington, Louis H, 1979. "The Hedging Performance of the New Futures Markets," Journal of Finance, American Finance Association, vol. 34(1), pages 157-170, March.
    14. Spierdijk, Laura & Umar, Zaghum, 2015. "Stocks, bonds, T-bills and inflation hedging: From great moderation to great recession," Journal of Economics and Business, Elsevier, vol. 79(C), pages 1-37.
    15. Wei Jiang & Ruijie Gao & Chao Lu, 2022. "The Analysis of Causality and Risk Spillover between Crude Oil and China’s Agricultural Futures," IJERPH, MDPI, vol. 19(17), pages 1-16, August.
    16. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    17. Jeffrey A. Frankel, 2008. "The Effect of Monetary Policy on Real Commodity Prices," NBER Chapters, in: Asset Prices and Monetary Policy, pages 291-333, National Bureau of Economic Research, Inc.
    18. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    19. Lu Wang & Ferhana Ahmad & Gong-li Luo & Muhammad Umar & Dervis Kirikkaleli, 2022. "Portfolio optimization of financial commodities with energy futures," Annals of Operations Research, Springer, vol. 313(1), pages 401-439, June.
    20. repec:oup:ecpoli:v:29:y:2014:i:80:p:691-747 is not listed on IDEAS
    21. Wu, You & Ren, Wenting & Wan, Jieru & Liu, Xiaoxue, 2023. "Time-frequency volatility connectedness between fossil energy and agricultural commodities: Comparing the COVID-19 pandemic with the Russia-Ukraine conflict," Finance Research Letters, Elsevier, vol. 55(PA).
    22. Sun, Yanpeng & Mirza, Nawazish & Qadeer, Abdul & Hsueh, Hsin-Pei, 2021. "Connectedness between oil and agricultural commodity prices during tranquil and volatile period. Is crude oil a victim indeed?," Resources Policy, Elsevier, vol. 72(C).
    23. Reboredo, Juan C., 2012. "Do food and oil prices co-move?," Energy Policy, Elsevier, vol. 49(C), pages 456-467.
    24. Naeem, Muhammad Abubakr & Karim, Sitara & Hasan, Mudassar & Lucey, Brian M. & Kang, Sang Hoon, 2022. "Nexus between oil shocks and agriculture commodities: Evidence from time and frequency domain," Energy Economics, Elsevier, vol. 112(C).
    25. Zhuo Chen & Bo Yan & Hanwen Kang, 2023. "Price bubbles of agricultural commodities: evidence from China’s futures market," Empirical Economics, Springer, vol. 64(1), pages 195-222, January.
    26. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
    27. Koirala, Krishna H. & Mishra, Ashok K. & D'Antoni, Jeremy M. & Mehlhorn, Joey E., 2015. "Energy prices and agricultural commodity prices: Testing correlation using copulas method," Energy, Elsevier, vol. 81(C), pages 430-436.
    28. Christiane Baumeister & Lutz Kilian, 2014. "Do oil price increases cause higher food prices? [Biofuels, binding constraints, and agricultural commodity price volatility]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 29(80), pages 691-747.
    29. Umar, Zaghum & Jareño, Francisco & Escribano, Ana, 2021. "Agricultural commodity markets and oil prices: An analysis of the dynamic return and volatility connectedness," Resources Policy, Elsevier, vol. 73(C).
    30. Umar, Zaghum & Hussain Shahzad, Syed Jawad & Kenourgios, Dimitris, 2019. "Hedging U.S. metals & mining Industry's credit risk with industrial and precious metals," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    31. Adämmer, Philipp & Bohl, Martin T., 2015. "Speculative bubbles in agricultural prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 67-76.
    32. Tiwari, Aviral Kumar & Nasreen, Samia & Shahbaz, Muhammad & Hammoudeh, Shawkat, 2020. "Time-frequency causality and connectedness between international prices of energy, food, industry, agriculture and metals," Energy Economics, Elsevier, vol. 85(C).
    33. Farid, Saqib & Naeem, Muhammad Abubakr & Paltrinieri, Andrea & Nepal, Rabindra, 2022. "Impact of COVID-19 on the quantile connectedness between energy, metals and agriculture commodities," Energy Economics, Elsevier, vol. 109(C).
    34. Chen, Shiu-Sheng, 2010. "Do higher oil prices push the stock market into bear territory?," Energy Economics, Elsevier, vol. 32(2), pages 490-495, March.
    35. Fowowe, Babajide, 2016. "Do oil prices drive agricultural commodity prices? Evidence from South Africa," Energy, Elsevier, vol. 104(C), pages 149-157.
    36. Ciaian, Pavel & Kancs, d'Artis, 2011. "Interdependencies in the energy-bioenergy-food price systems: A cointegration analysis," Resource and Energy Economics, Elsevier, vol. 33(1), pages 326-348, January.
    37. Du, Xiaodong & Yu, Cindy L. & Hayes, Dermot J., 2011. "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis," Energy Economics, Elsevier, vol. 33(3), pages 497-503, May.
    38. Beckmann, Joscha & Czudaj, Robert, 2014. "Volatility transmission in agricultural futures markets," Economic Modelling, Elsevier, vol. 36(C), pages 541-546.
    39. Pal, Debdatta & Mitra, Subrata K., 2018. "Interdependence between crude oil and world food prices: A detrended cross correlation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 1032-1044.
    40. Hung, Ngo Thai, 2021. "Oil prices and agricultural commodity markets: Evidence from pre and during COVID-19 outbreak," Resources Policy, Elsevier, vol. 73(C).
    41. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    42. El Montasser, Ghassen & Malek Belhoula, Mohamed & Charfeddine, Lanouar, 2023. "Co-explosivity versus leading effects: Evidence from crude oil and agricultural commodities," Resources Policy, Elsevier, vol. 81(C).
    43. repec:bla:ecpoli:v:29:y:2014:i:80:p:691-747 is not listed on IDEAS
    44. Rim El Khoury & Nohad Nasrallah & Khaled Hussainey & Rima Assaf, 2023. "Spillover analysis across FinTech, ESG, and renewable energy indices before and during the Russia–Ukraine war: International evidence," Post-Print hal-04564870, HAL.
    45. Chowdhury, Mohammad Ashraful Ferdous & Meo, Muhammad Saeed & Aloui, Chaker, 2021. "How world uncertainties and global pandemics destabilized food, energy and stock markets? Fresh evidence from quantile on quantile regressions," International Review of Financial Analysis, Elsevier, vol. 76(C).
    46. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2020. "Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions," JRFM, MDPI, vol. 13(4), pages 1-23, April.
    47. Yaxian Lu & Longguang Yang & Lihong Liu, 2019. "Volatility Spillovers between Crude Oil and Agricultural Commodity Markets since the Financial Crisis," Sustainability, MDPI, vol. 11(2), pages 1-12, January.
    48. Gal Hochman & Scott Kaplan & Deepak Rajagopal & David Zilberman, 2012. "Biofuel and Food-Commodity Prices," Agriculture, MDPI, vol. 2(3), pages 1-10, September.
    49. Chang, Ting-Huan & Su, Hsin-Mei, 2010. "The substitutive effect of biofuels on fossil fuels in the lower and higher crude oil price periods," Energy, Elsevier, vol. 35(7), pages 2807-2813.
    50. Platanakis, Emmanouil & Urquhart, Andrew, 2020. "Should investors include Bitcoin in their portfolios? A portfolio theory approach," The British Accounting Review, Elsevier, vol. 52(4).
    51. Ji, Qiang & Zhang, Dayong & Zhao, Yuqian, 2020. "Searching for safe-haven assets during the COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 71(C).
    52. Rafiq, Shuddhasawtta & Salim, Ruhul & Bloch, Harry, 2009. "Impact of crude oil price volatility on economic activities: An empirical investigation in the Thai economy," Resources Policy, Elsevier, vol. 34(3), pages 121-132, September.
    53. Ayhan KAPUSUZOGLU & Merve KARACAER ULUSOY, 2015. "The interactions between agricultural commodity and oil prices: an empirical analysis," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 61(9), pages 410-421.
    54. Nazlioglu, Saban & Soytas, Ugur, 2012. "Oil price, agricultural commodity prices, and the dollar: A panel cointegration and causality analysis," Energy Economics, Elsevier, vol. 34(4), pages 1098-1104.
    55. 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).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Farzaneh Ahmadian-Yazdi & Amin Sokhanvar & Soheil Roudari & Aviral Kumar Tiwari, 2025. "Dynamics of the relationship between stock markets and exchange rates during quantitative easing and tightening," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-32, December.
    2. Lu, Xunfa & He, Pengchao & Zhang, Zhengjun & Apergis, Nicholas, 2024. "Extreme co-movements between CO2 emission allowances and commodity markets and their response to economic policy uncertainty," Energy Economics, Elsevier, vol. 138(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Balcilar, Mehmet & Gabauer, David & Umar, Zaghum, 2021. "Crude Oil futures contracts and commodity markets: New evidence from a TVP-VAR extended joint connectedness approach," Resources Policy, Elsevier, vol. 73(C).
    2. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Adewuyi, Adeolu O. & Lee, Chien-Chiang, 2022. "Quantile risk spillovers between energy and agricultural commodity markets: Evidence from pre and during COVID-19 outbreak," Energy Economics, Elsevier, vol. 113(C).
    3. Zhou, Xiaoran & Enilov, Martin & Parhi, Mamata, 2024. "Does oil spin the commodity wheel? Quantile connectedness with a common factor error structure across energy and agricultural markets," Energy Economics, Elsevier, vol. 132(C).
    4. Wei, Yu & Wang, Yizhi & Vigne, Samuel A. & Ma, Zhenyu, 2023. "Alarming contagion effects: The dangerous ripple effect of extreme price spillovers across crude oil, carbon emission allowance, and agriculture futures markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    5. Cao, Yan & Cheng, Sheng, 2021. "Impact of COVID-19 outbreak on multi-scale asymmetric spillovers between food and oil prices," Resources Policy, Elsevier, vol. 74(C).
    6. Naeem, Muhammad Abubakr & Chatziantoniou, Ioannis & Gabauer, David & Karim, Sitara, 2024. "Measuring the G20 stock market return transmission mechanism: Evidence from the R2 connectedness approach," International Review of Financial Analysis, Elsevier, vol. 91(C).
    7. Umar, Zaghum & Jareño, Francisco & Escribano, Ana, 2021. "Agricultural commodity markets and oil prices: An analysis of the dynamic return and volatility connectedness," Resources Policy, Elsevier, vol. 73(C).
    8. Polat, Onur & Ertuğrul, Hasan Murat & Sakarya, Burçhan & Akgül, Ali, 2024. "TVP-VAR based time and frequency domain food & energy commodities connectedness an analysis for financial/geopolitical turmoil episodes," Applied Energy, Elsevier, vol. 357(C).
    9. Cocca, Teodoro & Gabauer, David & Pomberger, Stefan, 2024. "Clean energy market connectedness and investment strategies: New evidence from DCC-GARCH R2 decomposed connectedness measures," Energy Economics, Elsevier, vol. 136(C).
    10. Mensi, Walid & Rehman, Mobeen Ur & Gök, Remzi & Gemici, Eray & Vo, Xuan Vinh, 2025. "Risk spillovers and diversification benefits between crude oil and agricultural commodity futures markets," Research in International Business and Finance, Elsevier, vol. 73(PA).
    11. 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).
    12. Juncal Cunado & David Gabauer & Rangan Gupta, 2024. "Realized volatility spillovers between energy and metal markets: a time-varying connectedness approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-17, December.
    13. Le, Trung H. & Pham, Linh & Do, Hung X., 2023. "Price risk transmissions in the water-energy-food nexus: Impacts of climate risks and portfolio implications," Energy Economics, Elsevier, vol. 124(C).
    14. Cagli, Efe Caglar, 2023. "The volatility spillover between battery metals and future mobility stocks: Evidence from the time-varying frequency connectedness approach," Resources Policy, Elsevier, vol. 86(PA).
    15. Stenfors, Alexis & Chatziantoniou, Ioannis & Gabauer, David, 2022. "Independent policy, dependent outcomes: A game of cross-country dominoes across European yield curves," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    16. Cagli, Efe Caglar & Mandaci, Pinar Evrim & Taskin, Dilvin, 2023. "The volatility connectedness between agricultural commodity and agri businesses: Evidence from time-varying extended joint approach," Finance Research Letters, Elsevier, vol. 52(C).
    17. Raza, Syed Ali & Guesmi, Khaled & Belaid, Fateh & Shah, Nida, 2022. "Time-frequency causality and connectedness between oil price shocks and the world food prices," Research in International Business and Finance, Elsevier, vol. 62(C).
    18. Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel & Gabauer, David & Dwumfour, Richard Adjei, 2022. "Dynamic spillover effects among green bond, renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies," Global Finance Journal, Elsevier, vol. 51(C).
    19. Naeem, Muhammad Abubakr & Karim, Sitara & Hasan, Mudassar & Lucey, Brian M. & Kang, Sang Hoon, 2022. "Nexus between oil shocks and agriculture commodities: Evidence from time and frequency domain," Energy Economics, Elsevier, vol. 112(C).
    20. Hanif, Waqas & Areola Hernandez, Jose & Shahzad, Syed Jawad Hussain & Yoon, Seong-Min, 2021. "Tail dependence risk and spillovers between oil and food prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 195-209.

    More about this item

    Keywords

    Agricultural commodities; Fossil fuels; Spillover; Portfolio management;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:95:y:2024:i:c:s1059056024004842. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.