IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Dynamic spillovers among major energy and cereal commodity prices

  • Walid Mensi
  • Shawkat Hammoudeh
  • Duc Khuong Nguyen
  • Seong-Min Yoon

Over the past decade, the sharp increases in the prices of oil and agricultural commodities have raised serious concerns about the heightened volatility of these markets and the possible negative interactions between them. This article deals with the dynamic return and volatility spillovers across internationally traded energy and cereal commodity markets. It also examines the impacts of three types of OPEC news announcements on the volatility spillovers and persistence in these markets. For this purpose, we make use of the VAR-BEKK-GARCH and VAR-DCC-GARCH models for the daily prices of eight major commodities including WTI oil, Europe Brent oil, gasoline, heating oil #2, barley, corn, sorghum, and wheat. Our results provide evidence of significant linkages between the energy and cereal markets. Moreover, the OPEC news announcements are found to exert influence on the oil markets as well as on the oil-cereal relationships. Finally, we show that the persistence of volatility decreases (increases) for the crude oil and heating (gasoline) returns after accounting for the OPEC announcements in these multivariate GARCH models. However, the results are more mixed for the cereal markets. Overall, our results can be used to improve the risk-adjusted performance by having more diversified portfolios and also serve to hedge the oil risk more effectively.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ipag.fr/wp-content/uploads/recherche/WP/IPAG_WP_2014_160.pdf
Download Restriction: no

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-160.

as
in new window

Length: 36 pages
Date of creation: 25 Feb 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-160
Contact details of provider: Postal: 184 Boulevard Saint-Germain, 75006 Paris
Phone: 33 1 53 63 36 00
Web page: http://www.ipag.fr

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Massimiliano Caporin & Michael McAleer, 2009. "Do We Really Need Both BEKK and DCC? A Tale of Two Covariance Models," Documentos de Trabajo del ICAE 0904, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  2. Cooke, Bryce & Robles, Miguel, 2009. "Recent food prices movements: A time series analysis," IFPRI discussion papers 942, International Food Policy Research Institute (IFPRI).
  3. Brian D. Wright, 2011. "The Economics of Grain Price Volatility," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(1), pages 32-58.
  4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  5. Ramazan Sari & Shawkat Hammoudeh & Chia-Lin Chang & Michael McAleer, 2011. "Causality Between Market Liquidity and Depth for Energy and Grains," Working Papers in Economics 11/15, University of Canterbury, Department of Economics and Finance.
  6. Zhang, Qiang & Reed, Michael R., 2008. "Examining the Impact of the World Crude Oil Price on China's Agricultural Commodity Prices: The Case of Corn, Soybean, and Pork," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6797, Southern Agricultural Economics Association.
  7. Creti, Anna & Joëts, Marc & Mignon, Valérie, 2013. "On the links between stock and commodity markets' volatility," Energy Economics, Elsevier, vol. 37(C), pages 16-28.
  8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  9. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
  10. Chia-Lin Chang & Li-Hsueh Chen & Shawkat Hammoudeh & Michael McAleer, 2010. "Asymmetric Adjustments in the Ethanol and Grains Markets," Working Papers in Economics 10/78, University of Canterbury, Department of Economics and Finance.
  11. Demirer, RIza & Kutan, Ali M., 2010. "The behavior of crude oil spot and futures prices around OPEC and SPR announcements: An event study perspective," Energy Economics, Elsevier, vol. 32(6), pages 1467-1476, November.
  12. Reboredo, Juan C., 2012. "Do food and oil prices co-move?," Energy Policy, Elsevier, vol. 49(C), pages 456-467.
  13. Nazlioglu, Saban & Soytas, Ugur, 2011. "World oil prices and agricultural commodity prices: Evidence from an emerging market," Energy Economics, Elsevier, vol. 33(3), pages 488-496, May.
  14. Matteo Manera & Marcella Nicolini & Ilaria Vignati, 2012. "Returns in commodities futures markets and financial speculation: a multivariate GARCH approach," Quaderni di Dipartimento 170, University of Pavia, Department of Economics and Quantitative Methods.
  15. 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.
  16. Christopher Gilbert & Wyn Morgan, 2010. "Has food price volatility risen?," Department of Economics Working Papers 1002, Department of Economics, University of Trento, Italia.
  17. Tansuchat, R. & Chang, C-L. & McAleer, M.J., 2010. "Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH," Econometric Institute Research Papers EI 2010-10, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  18. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
  19. Shiqing Ling & Michael McAleer, 2001. "Asymptotic Theory for a Vector ARMA-GARCH Model," ISER Discussion Paper 0549, Institute of Social and Economic Research, Osaka University.
  20. Abbott, Philip C. & Hurt, Christopher & Tyner, Wallace E., 2009. "What's Driving Food Prices? March 2009 Update," Issue Reports 48495, Farm Foundation.
  21. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
  22. Xiaodong Du & Cindy L. Yu & Dermot J. Hayes, 2009. "Speculation and Volatility Spillover in the Crude Oil and Agricultural Commodity Markets: A Bayesian Analysis," Center for Agricultural and Rural Development (CARD) Publications 09-wp491, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  23. Gardebroek, Cornelis & Hernandez, Manuel A., 2013. "Do energy prices stimulate food price volatility? Examining volatility transmission between US oil, ethanol and corn markets," Energy Economics, Elsevier, vol. 40(C), pages 119-129.
  24. Harri, Ardian & Nalley, Lawton Lanier & Hudson, Darren, 2009. "The Relationship between Oil, Exchange Rates, and Commodity Prices," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(02), August.
  25. Mensi, Walid & Beljid, Makram & Boubaker, Adel & Managi, Shunsuke, 2013. "Correlations and volatility spillovers across commodity and stock markets: Linking energies, food, and gold," Economic Modelling, Elsevier, vol. 32(C), pages 15-22.
  26. Richards, Timothy J. & Allender, William J. & Hamilton, Stephen F., 2012. "Commodity price inflation, retail pass-through and market power," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 50-57.
  27. Franz Wirl and Azra Kujundzic, 2004. "The Impact of OPEC Conference Outcomes on World Oil Prices 1984-2001," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 45-62.
  28. Serra, Teresa, 2011. "Volatility Spillovers between Food and Energy Markets, A Semiparametric Approach," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115997, European Association of Agricultural Economists.
  29. Zhang, Zibin & Lohr, Luanne & Escalante, Cesar & Wetzstein, Michael, 2010. "Food versus fuel: What do prices tell us?," Energy Policy, Elsevier, vol. 38(1), pages 445-451, January.
  30. Jeantheau, Thierry, 1998. "Strong Consistency Of Estimators For Multivariate Arch Models," Econometric Theory, Cambridge University Press, vol. 14(01), pages 70-86, February.
  31. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  32. Campiche, Jody L. & Bryant, Henry L. & Richardson, James W. & Outlaw, Joe L., 2007. "Examining the Evolving Correspondence Between Petroleum Prices and Agricultural Commodity Prices," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9881, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  33. Chen, Sheng-Tung & Kuo, Hsiao-I & Chen, Chi-Chung, 2010. "Modeling the relationship between the oil price and global food prices," Applied Energy, Elsevier, vol. 87(8), pages 2517-2525, August.
  34. Hanson, Kenneth & Robinson, Sherman & Schluter, Gerald E., 1993. "Sectoral Effects Of A World Oil Price Shock: Economywide Linkages To The Agricultural Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
  35. Creti, Anna & Joëts, Marc & Mignon, Valérie, 2013. "On the links between stock and commodity markets' volatility," Economics Papers from University Paris Dauphine 123456789/14980, Paris Dauphine University.
  36. Comte, F. & Lieberman, O., 2003. "Asymptotic theory for multivariate GARCH processes," Journal of Multivariate Analysis, Elsevier, vol. 84(1), pages 61-84, January.
  37. Vivian, Andrew & Wohar, Mark E., 2012. "Commodity volatility breaks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 395-422.
  38. Bina Cyrus & Vo Minh, 2007. "OPEC in the Epoch of Globalization: An Event Study of Global Oil Prices," Global Economy Journal, De Gruyter, vol. 7(1), pages 1-52, February.
  39. El Hedi Arouri, Mohamed & Jouini, Jamel & Nguyen, Duc Khuong, 2011. "Volatility spillovers between oil prices and stock sector returns: Implications for portfolio management," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1387-1405.
  40. Daniel A. Sumner, 2009. "Recent Commodity Price Movements in Historical Perspective," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1250-1256.
  41. Hammoudeh, S.M. & Yuan, Y. & McAleer, M.J., 2008. "Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets," Econometric Institute Research Papers EI 2008-29, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  42. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425.
  43. Nazlioglu, Saban & Erdem, Cumhur & Soytas, Ugur, 2013. "Volatility spillover between oil and agricultural commodity markets," Energy Economics, Elsevier, vol. 36(C), pages 658-665.
  44. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
  45. 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.
  46. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  47. Schmidbauer, Harald & Rösch, Angi, 2012. "OPEC news announcements: Effects on oil price expectation and volatility," Energy Economics, Elsevier, vol. 34(5), pages 1656-1663.
  48. Abbott, Philip C. & Hurt, Christopher & Tyner, Wallace E., 2008. "What's Driving Food Prices?," Issue Reports 37951, Farm Foundation.
  49. Hafner, Christian M. & Herwartz, Helmut, 2006. "A Lagrange multiplier test for causality in variance," Economics Letters, Elsevier, vol. 93(1), pages 137-141, October.
  50. Benson, Todd & Minot, Nicholas & Pender, John & Robles, Miguel & von Braun, Joachim, 2013. "Information to guide policy responses to higher global food prices: The data and analyses required," Food Policy, Elsevier, vol. 38(C), pages 47-58.
  51. Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ipg:wpaper:2014-160. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ingmar Schumacher)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.