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Structure Dependence between Oil and Agricultural Commodities Returns: The Role of Geopolitical Risks

Author

Listed:
  • Aviral Kumar Tiwari

    (Rajagiri Business School, Rajagiri Valley Campus, Kochi, Kerala, India)

  • Micheal Kofi Boachie

    (School of Economics, University of Cape Town, Rondebosch 7701, South Africa)

  • Tahir Suleman

    (Department of Accounting and Finance, Otago Business School, OBS 345, PO Box 56, Dunedin, New Zealand)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)

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 comovements between energy markets and agricultural markets, which are also negatively influenced by GPRs, and hence suggest the ability of agricultural commodities, particularly corn, oats and wheat, to act as 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.

Suggested Citation

  • Aviral Kumar Tiwari & Micheal Kofi Boachie & Tahir Suleman & Rangan Gupta, 2020. "Structure Dependence between Oil and Agricultural Commodities Returns: The Role of Geopolitical Risks," Working Papers 202079, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202079
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    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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