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The macroeconomic determinants of commodity futures volatility: Evidence from Chinese and Indian markets

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  • Mo, Di
  • Gupta, Rakesh
  • Li, Bin
  • Singh, Tarlok

Abstract

We examine the macroeconomic determinants of the volatility of commodity futures (including agricultural commodity futures, metal futures and oil futures) in two emerging commodity markets – China and India. The macroeconomic variables used include both domestic and international macroeconomic variables that gauge economic environment, monetary policy and financial market information. We use a recently proposed GARCH-MIDAS model which jointly incorporates the daily price volatility and low-frequency macroeconomic variables. The model decomposes the volatility series into short- and long-run components, thereby enabling us to test whether the macroeconomic variables can determine the long-run variance. We find that there exists a long-run volatility component in the commodity futures, and most of the tested low-frequency macroeconomic variables are positively related to the long-run variance of commodity futures. Our results suggest that both domestic and international macroeconomic information plays an important role in determining the price volatility of the emerging commodity futures.

Suggested Citation

  • Mo, Di & Gupta, Rakesh & Li, Bin & Singh, Tarlok, 2018. "The macroeconomic determinants of commodity futures volatility: Evidence from Chinese and Indian markets," Economic Modelling, Elsevier, vol. 70(C), pages 543-560.
    • Handle: RePEc:eee:ecmode:v:70:y:2018:i:c:p:543-560
    DOI: 10.1016/j.econmod.2017.08.032
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    More about this item

    Keywords

    Macroeconomic determinants; Volatility; Commodity futures; Emerging markets; GARCH-MIDAS model;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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