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Crude Oil Volatility Transmission Across Food Commodity Markets: A Multivariate BEKK-GARCH Approach

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  • M. Thenmozhi
  • Shipra Maurya

Abstract

This study examines the time-varying price risk transmission in the nexus between crude oil and agricultural commodity prices in the context of non-grain-based biofuel producing country. Analysis of the short- and long-run dynamics of volatility in both spot and futures markets of maize, soybean and wheat and crude oil prices using the multivariate BEKK-GARCH model, indicate volatility spillover from wheat futures to crude oil futures in the short run and from crude oil futures to futures markets of maize, soybean and wheat in the long run. The spot market linkage of selected commodities is weaker compared to futures market, wherein maize spot volatility transmits to crude oil spot market in the longer period and no spillover between crude oil-food spot market is observed in the short run. The hedge ratios indicate that a dynamic hedging strategy is crucial for efficient risk management and the portfolio weights in futures market are more than the spot market. The results reveal that cross-market volatility spillover is more evident in the futures market, while own past conditional volatility is more significant in spot price discovery and risk transmission is evident among food commodities futures markets. JEL Codes: G13, G14, Q11, Q18, Q02

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  • M. Thenmozhi & Shipra Maurya, 2020. "Crude Oil Volatility Transmission Across Food Commodity Markets: A Multivariate BEKK-GARCH Approach," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 20(2), pages 131-164, August.
    • Handle: RePEc:sae:emffin:v:20:y:2020:i:2:p:131-164
    DOI: 10.1177/0972652720927623
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    3. Trabelsi, Nader & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2022. "Spillovers and directional predictability between international energy commodities and their implications for optimal portfolio and hedging," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    Volatility spillover; commodity futures; crude oil price; agricultural commodity; BEKK-GARCH model; biofuel;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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