Commodity markets volatility transmission: Roles of risk perceptions and uncertainty in financial markets

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GÖZGÖR G., Lau C. K. M. , BİLGİN M. H.

JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS & MONEY, vol.44, pp.35-45, 2016 (Peer-Reviewed Journal) identifier identifier

  • Publication Type: Article / Article
  • Volume: 44
  • Publication Date: 2016
  • Doi Number: 10.1016/j.intfin.2016.04.008
  • Journal Name: JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS & MONEY
  • Journal Indexes: Social Sciences Citation Index, Scopus
  • Page Numbers: pp.35-45
  • Keywords: Uncertainty, Risk perceptions, The VIX, Volatility spillover, Financial markets, Futures markets, Commodity markets, Crude oil markets, REALIZED VOLATILITY, OIL, PRICES, STOCK, STRESS, SHOCKS, IMPACT, RETURN

Abstract

This paper uses GJR-GARCH estimations to analyze the price volatility transmissions among the crude oil, corn, soybeans, sugar, and wheat markets. Special role is also given to two driving mechanisms of the relationship: (i) the volatility index (VIX) as a measure of risk perceptions, and (ii) the equity market uncertainty (EMU) index as a measure of uncertainty in financial markets. The analysis covers the daily futures markets data from January 1, 1990 to July 31, 2015, and several sub-periods in the empirical strategy are also considered. The empirical results show that (i) crude oil return is positively related to four agricultural commodity returns; (ii) a higher risk perception in financial markets suppresses both the corn and soybeans returns over the period August 1, 2008-July 31, 2015; (iii) a higher uncertainty in financial markets is negatively related to the corn and soybeans returns for the period from June 1, 2010 to July 31, 2015; (iv) the results for the effects of risk perceptions and uncertainty on wheat market returns are not statistically robust; i.e., these results are time-specific in the different sub-period analyses. (C) 2016 Elsevier B.V. All rights reserved.