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The realized volatility of commodity futures: Interconnectedness and determinants#

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  • Bouri, Elie
  • Lucey, Brian
  • Saeed, Tareq
  • Vo, Xuan Vinh

Abstract

Using high frequency data and connectedness measures based on a time-varying parameter vector autoregression (TVP-VAR) model, we study dynamic connectedness among the realized volatility of 15 commodity futures (Gold, Heating oil, Light crude oil, Natural gas, Copper, Platinum, Cocoa, Coffee, Corn, Cotton, Orange Juice, Soybean, Soybean meal, Sugar, and Wheat) from September 22, 2008 to May 28, 2020. The results show strong and moderate levels of volatility connectedness among energy and metals and moderate connectedness levels within the group of agricultural commodities. Cross-commodity connectedness can explain a large portion of volatility connectedness in some cases, highlighting the importance of conducting realized volatility connectedness within a model allowing realized volatilities to be endogenously and simultaneously determined. Connectedness is robust to alternative specifications and varies with time. It is mostly driven by macroeconomic variables and uncertainty, including the term spread of interest rates and real economic activity. However, the analysis shows that some of the drivers of connectedness differ between upper and lower quantiles.

Suggested Citation

  • Bouri, Elie & Lucey, Brian & Saeed, Tareq & Vo, Xuan Vinh, 2021. "The realized volatility of commodity futures: Interconnectedness and determinants#," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 139-151.
    • Handle: RePEc:eee:reveco:v:73:y:2021:i:c:p:139-151
    DOI: 10.1016/j.iref.2021.01.006
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    More about this item

    Keywords

    Commodity futures; Realized volatility; Connectedness measures; Spillover index; Determinants of connectedness;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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