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Commodities and Policy Uncertainty Channel(s)

Author

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  • Smimou, K.
  • Bosch, D.
  • Filbeck, G.

Abstract

Based on a proposed linked theoretical model, this study dissects the contributory role of policy uncertainty on commodity futures contracts and pertinent commodity equity sectors. Within an economically connected framework, we elucidate the dynamic relationship between these groups of assets while allowing for policy uncertainty shock. Findings show that commodity hedgers altered trading positions in metals in response to a high policy uncertainty shock before 2004. In contrast, speculators account for that shock after that date purely via crude oil. Both monetary policy and regulatory uncertainties influence the pricing dynamics of metals and energy commodities. Given the inextricable commodity–stock relationship, we offer evidence to support the triple effect of economic policy uncertainty on the intensiveness of financialization of commodities and commodity stock returns through (1) change of institutional holdings, (2) managers’ alteration of CAPEX investment of commodity firms, and (3) the interactive causality channel between commodity futures and commodity stocks.

Suggested Citation

  • Smimou, K. & Bosch, D. & Filbeck, G., 2024. "Commodities and Policy Uncertainty Channel(s)," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 351-379.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:351-379
    DOI: 10.1016/j.iref.2024.01.065
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    More about this item

    Keywords

    Hedgers; Speculators; Commodity stock markets; Commodity futures; Policy uncertainty; Financialization of commodities;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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