Do crude oil prices spillover food prices? Evidence for Asia and Pacific countries

Alom, Fardous

doi:10.1504/ijetp.2015.069103

Cited by 17 publications

(23 citation statements)

References 31 publications

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“…The weak association between oil, commodities and equities has been challenged by recent research (Zhang and Wei, 2010;Alom et al, 2011;Chang and Su, 2010;Du et al, 2011;Harri and Hudson, 2009). These studies show that shocks in the oil market are transmitted to other markets through the rebalancing activities in the paper commodity markets.…”

Section: Introductionmentioning

confidence: 99%

“…Similarly, managed futures funds invest in futures and options that are written on the commodities traded in these markets. The exposure to these markets is usually assumed indirectly through derivatives and hence, the study of risk connectedness between oil and other commodity markets is important to understand diversification in derivatives portfolios that contain commodities, foreign exchange and equity options.The weak association between oil, commodities and equities has been challenged by recent research (Zhang and Wei, 2010;Alom et al, 2011;Chang and Su, 2010;Du et al, 2011;Harri and Hudson, 2009). These studies show that shocks in the oil market are transmitted to other markets through the rebalancing activities in the paper commodity markets.…”

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The connectedness between crude oil and financial markets: Evidence from implied volatility indices

Awartani

Maghyereh

Guermat

2016

Journal of Commodity Markets

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In this paper we exploit newly introduced implied volatility indexes to investigate the directional risk transfer from oil to US equities, Euro/Dollar exchange rates, precious metals and agricultural commodities. We find significant volatility transmission from oil to equities but little transmission to agricultural commodities. The total pairwise directional connectedness to equities is around 20.4%, while it is only 1.6%, 1.0% and 2.0% to wheat, corn, and soybeans respectively. The risk spillover from oil to precious metals and Euro/Dollar foreign exchange rates is moderate. For instance, the oil market uncertainty spills 11.0%, 11.1% and 8.9% to gold, silver and Euro/Dollar exchange rate respectively. The volatility crossover from all of these markets to oil is tiny, implying that oil is the main driver of its association with these markets. Finally, we provide evidence that the transmission from oil to other markets has increased since the collapse of oil prices in July 2014. IntroductionRecently, a number of papers have studied the co-movement of oil with equities, agricultural commodities and precious metals. Prior studies provide evidence on the connectedness between oil and one or more markets. However, the bulk of these studies have so far focused on price connectedness. Little research has been dedicated to volatility association. Like prices, volatilities are important driving factors of options markets. This raises an interesting question: how are oil and other related markets associated in terms volatilities? The main aim of this paper is to provide an answer to such a question.Most of the existing studies on oil connectedness have investigated the relation between the oil market and other markets on a one-to-one basis. 1 In contrast, this study looks into the oil association using all relevant markets. Specifically, we study the influence of oil on the US equity market, the Euro/Dollar exchange rate market, the gold market, the silver market, the wheat market, the corn market and the soybeans market.One notable exception is Sari et al. (2010) who studied oil association with more than one market. However, we take a more inclusive approach as we consider a broader set of markets in the analysis. Our choice of markets represents a universe of financial assets that cover a wide range of investment strategies. The cash and derivative markets associated with these assets are global, large and liquid and therefore the risk transfer between oil and these markets is an important piece of information for investors.cross Many hedge funds have their strategies and asset classes defined within the context of these markets. For instance, global macro funds take opportunities in cash and derivatives markets that include equities, currencies and commodities. Similarly, managed futures funds invest in futures and options that are written on the commodities traded in these markets. The exposure to these markets is usually assumed indirectly through derivatives and hence, the study of risk connectedness between oil a...

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Section: Introductionmentioning

confidence: 99%

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The connectedness between crude oil and financial markets: Evidence from implied volatility indices

Awartani

Maghyereh

Guermat

2016

Journal of Commodity Markets

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“…However, Gilbert and Morgan [15] obtained opposite findings as crude oil prices negatively impact the agricultural commodity prices. Using co-integration approach, Saghaian [16] and Alom et al [17] observed strong correlation between crude oil prices and agricultural commodities prices. However, Mutuc et al [18] and Zhang et al [19] find no direct correlation between crude oil prices and agricultural commodities prices.…”

Section: Literature Reviewmentioning

confidence: 99%

On Volatility Transmission from Crude Oil to Agricultural Commodities

Kumar¹

2017

TEL

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The paper examines volatility transmission from crude oil market to agricultural commodities like wheat, corn, cotton and soybeans. We find that the volatility transmission from crude oil to agricultural commodities exhibits sudden changes over a study period. We also examine whether the sudden changes in volatility influence the observed sudden changes in volatility transmission from crude oil to agricultural commodities. Our results indicate the observed sudden change in volatility transmission mechanism is not influenced by sudden changes in volatility series.

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“…Fardous Alom [15] in his study investigated the mean and volatility spillover effects of world crude oil prices on the food prices for selected Asia and Pacific countries/areas (viz. Australia, New Zealand, South Korea, Singapore, Hong Kong (China), Chinese Taipei, India and Thailand) by employing vector auto regression (VAR) and generalized autoregressive conditional heteroskedasticity (GARCH)-family models over the period 1995-2010.…”

Section: Review Of Literaturementioning

confidence: 99%

Financialisation Impacting Diversification? Evidence from Indian Equity & Commodity Markets

Narsimhulu¹,

Satish²,

Satyanarayana³

2016

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Investors are constantly looking at diversification of risks by combining equities with other assets in their portfolio. Apart from fixed income securities and real estate related instruments, commodities are also being increasingly used as a portfolio diversification strategy. But the overwhelming presence of financial institutions and funds in the commodity markets has resulted in financialisation of commodity markets leading to a greater correlation between equities and commodities especially during recession. This has lead to a reduction in diversification benefits. The paper attempts to study the diversification benefits of investing both in Indian commodities and equities markets in different economic environments using VAR Impulse Response Functions with an aim to find out whether financialization exists. The research found that there was absence of interdependence between the Indian equity and commodities markets which offered a good opportunity for diversification. Also the equities market and commodities market during recession were totally decoupled which showed that the financialization was not present in Indian commodities market and there was a greater scope for diversification during the recession.

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Do crude oil prices spillover food prices? Evidence for Asia and Pacific countries

Cited by 17 publications

References 31 publications

The connectedness between crude oil and financial markets: Evidence from implied volatility indices

The connectedness between crude oil and financial markets: Evidence from implied volatility indices

On Volatility Transmission from Crude Oil to Agricultural Commodities

Financialisation Impacting Diversification? Evidence from Indian Equity & Commodity Markets

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Do crude oil prices spillover food prices? Evidence for Asia and Pacific countries

Cited by 17 publications

References 31 publications

The connectedness between crude oil and financial markets: Evidence from implied volatility indices

The connectedness between crude oil and financial markets: Evidence from implied volatility indices

On Volatility Transmission from Crude Oil to Agricultural Commodities

Financialisation Impacting Diversification? Evidence from Indian Equity &amp; Commodity Markets

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Financialisation Impacting Diversification? Evidence from Indian Equity & Commodity Markets