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The good, the bad and the ugly relation between oil and commodities: An analysis of asymmetric volatility connectedness and portfolio implications

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  • Maitra, Debasish
  • Guhathakurta, Kousik
  • Kang, Sang Hoon

Abstract

This study examines the direction and extent of asymmetric volatility connectedness between the oil and commodity markets, using five-minute interval data from the oil, natural gas, and 21 commodity futures markets. We also analyze the positive and negative volatility connectedness through network diagrams to determine the magnitude and strength of the volatility spillover. We suggest optimal portfolios for several oil-commodity pairs minimizing value-at-risk and conditional value-at-risk with higher hedge effectiveness. The results are of significant interest to investors and policymakers.

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  • Maitra, Debasish & Guhathakurta, Kousik & Kang, Sang Hoon, 2021. "The good, the bad and the ugly relation between oil and commodities: An analysis of asymmetric volatility connectedness and portfolio implications," Energy Economics, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:eneeco:v:94:y:2021:i:c:s0140988320304011
    DOI: 10.1016/j.eneco.2020.105061
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    More about this item

    Keywords

    Oil price; Commodity prices; Asymmetric volatility spillover; Portfolio implications;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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