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The Relationship of Crude Palm Oil Spot-Futures under Inflationary Expectation in Gold Market

Author

Listed:
  • You-How Go

    (Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Malaysia.)

  • Wee-Yeap Lau

    (Faculty of Economics and Administration, University of Malaya, Malaysia.)

Abstract

This study attempts to test whether the direction of information spillover between crude palm oil (CPO) spot and futures price corresponds to a long-term shift in gold price. While there is yet to be a study on the CPO spot-futures relationship under the inflationary expectation of gold price, this paper hypothesizes that market participants are bullish on gold price will use the commodity as an inflation hedge, and this put speculative pressure on future CPO price. Using daily data on CPO spot and futures returns from January 1996 to November 2011, notably, it is found that: First, there is volatility spillover from current futures return to spot return during bullish period in gold due to increase in investor demand; Second, only contemporaneous volatility spillover between spot and futures returns exist during bearish period as investors become more risk averse. This study adds to another stylized fact that the upward trend of the gold price has economic content that leads to speculation of CPO price in the futures market.

Suggested Citation

  • You-How Go & Wee-Yeap Lau, 2017. "The Relationship of Crude Palm Oil Spot-Futures under Inflationary Expectation in Gold Market," Capital Markets Review, Malaysian Finance Association, vol. 25(1), pages 43-62.
    • Handle: RePEc:mfa:journl:v:25:y:2017:i:1:p:43-62
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    References listed on IDEAS

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    Cited by:

    1. Go, You-How & Lau, Wee-Yeap, 2021. "Extreme risk spillovers between crude palm oil prices and exchange rates," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Crude palm oil; gold trend; spot-futures relationship; information spillover; causality-in-variance.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G1 - Financial Economics - - General Financial Markets
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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