{"title":"Are shocks in the stock markets driven by commodity markets? Evidence from Russia-Ukraine war","authors":"Priti Biswas , Prachi Jain , Debasish Maitra","doi":"10.1016/j.jcomm.2024.100387","DOIUrl":"10.1016/j.jcomm.2024.100387","url":null,"abstract":"<div><p>We study the immediate impact of heightened geopolitical tensions caused by the Russia-Ukraine war, on volatility connectedness networks of 18 global stock markets and 5 major commodities. Our analyses reveal a shift in connectedness spillovers during the war: while crude oil (a net shock transmitter before the war) became a net shock receiver, shocks transmitted by crude oil net importers appear to primarily contribute to crude oil turning a net shock receiver, whereas for platinum and wheat, we observe that both net exporters and importers have received volatility shocks. We further dissect the impact of war on the direction of spillovers using panel censored regressions. Employing insights from the analyses, we design portfolios that weigh higher (lower) on stock indices with lower (higher) pairwise connectedness (PCI) to each commodity. We not only find these PCI-based portfolios to exhibit safe-haven properties under extreme geopolitical risk, but they also outperform an equally-weighted portfolio during a period of war. Finally, low-minus-high factors constructed on pairwise connectedness have significant explanatory power for portfolio returns, indicating connectedness as an additional factor for asset pricing models.</p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"34 ","pages":"Article 100387"},"PeriodicalIF":4.2,"publicationDate":"2024-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139765475","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"How does carbon market interact with energy and sectoral stocks? Evidence from risk spillover and wavelet coherence","authors":"Lu-Tao Zhao , Hai-Yi Liu , Xue-Hui Chen","doi":"10.1016/j.jcomm.2024.100386","DOIUrl":"https://doi.org/10.1016/j.jcomm.2024.100386","url":null,"abstract":"<div><p>As climate change becomes an important global issue and the global energy transformation accelerates, the complex risk transmission among carbon, energy, and stock markets is a concern. However, the majority of the existing studies are restricted to the time domain. This paper explores the risk spillovers of carbon, energy, and sectoral stock markets based on the time-frequency spillover approaches. Furthermore, wavelet coherence is employed to analyze the time-frequency dependence between markets. The findings suggest that there is a strong connectedness among carbon, energy, and sectoral stock markets, with significant differences in risk spillover at different frequencies. The carbon and energy markets are the net recipients of risk spillovers, while the industrial goods and services and financial services sectors act as the dominant risk transmitters. The crisis events have intensified the risk spillover magnitude. These results provide suggestions for risk management and asset allocation.</p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100386"},"PeriodicalIF":4.2,"publicationDate":"2024-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139748427","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Quantifying spillovers and connectedness among commodities and cryptocurrencies: Evidence from a Quantile-VAR analysis","authors":"Nikolaos Kyriazis , Stephanos Papadamou , Panayiotis Tzeremes , Shaen Corbet","doi":"10.1016/j.jcomm.2024.100385","DOIUrl":"https://doi.org/10.1016/j.jcomm.2024.100385","url":null,"abstract":"<div><p>This study examines dynamic connectedness linkages between precious metals, manufacturing metals, oil, natural gas, and Bitcoin. The Quantile-VAR methodology is utilised to identify causal spillovers from 2015 through 2022, where results demonstrate significantly stronger pairwise connectedness at extreme quantiles, where the gold–silver and copper–oil pairs exhibit the strongest linkages. Additionally, the overall dynamic connectedness is higher at the lowest and highest quantiles, particularly reinforced during inflationary periods. Copper is identified as the strongest generator of spillovers, followed by silver, nickel, and zinc. There are mixed findings when analysing gold and aluminium, whereas oil, natural gas, and Bitcoin are identified as net receivers. This study provides insight into commodities and cryptocurrency markets’ diversifying and hedging abilities during alternative economic and financial conditions.</p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100385"},"PeriodicalIF":4.2,"publicationDate":"2024-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S2405851324000047/pdfft?md5=f1ab1ca2371923aef39d1043d48e8237&pid=1-s2.0-S2405851324000047-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139675083","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Carbon volatility connectedness and the role of external uncertainties: Evidence from China","authors":"Huayi Chen , Huai-Long Shi , Wei-Xing Zhou","doi":"10.1016/j.jcomm.2024.100383","DOIUrl":"https://doi.org/10.1016/j.jcomm.2024.100383","url":null,"abstract":"<div><p>This paper investigates the volatility connectedness between China’s carbon pilot<span> markets. Using Diebold and Yilmaz (2014)’s approach based on the time-varying parameter vector autoregression model with a variety of parameter sets, we obtain the average across 40 results to capture the volatility connectedness between the markets. We further use the linear and nonlinear autoregressive distributed lag models to assess the role of external uncertainties in shaping volatility connectedness. Several findings emerge: (1) Guangdong (Chongqing) is the largest net transmitter (receiver) in terms of volatility connectedness; (2) Volatility connectedness shows a declining trend, with its cycle fluctuations caused by compliance-driven trading; (3) Volatility connectedness correlates negatively with external uncertainties. Both economic policy and climate policy indices have impacts on volatility connectedness. We recommend introducing market makers to enhance market liquidity and reduce risk spreading. We also highlight the need for further research to pinpoint idiosyncratic factors that affect different markets.</span></p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100383"},"PeriodicalIF":4.2,"publicationDate":"2024-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139473460","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Does public information facilitate price consensus? Characterizing USDA announcement effects using realized volatility","authors":"Gabriel D. Bunek , Joseph P. Janzen","doi":"10.1016/j.jcomm.2024.100382","DOIUrl":"10.1016/j.jcomm.2024.100382","url":null,"abstract":"<div><p>The provision of public information in commodity markets is justified in part by the idea that public information generates consensus among market participants about the fundamental value of the commodity and reduces price volatility. Significant reductions in options-implied volatility following report releases have been presented as evidence of this market-calming effect. We scrutinize this finding in more detail by comparing implied volatility to realized volatility measures from intraday price data. We show that while implied volatility does indeed fall after report releases, realized volatility does not decrease. We measure realized volatility using intraday data and find evidence of much higher volatility on report days only within minutes of the report release. This pattern is consistent with changes in implied volatility being driven by the resolution of uncertainty about the information contained in the report, rather than changes in volatility expectations that may reflect the consensus among traders about forthcoming price volatility.</p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100382"},"PeriodicalIF":4.2,"publicationDate":"2024-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S2405851324000011/pdfft?md5=ac63b20f58d7dc6cbbdb1b44afa526c0&pid=1-s2.0-S2405851324000011-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139412937","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Option pricing revisited: The role of price volatility and dynamics","authors":"Jean-Paul Chavas , Jian Li , Linjie Wang","doi":"10.1016/j.jcomm.2023.100381","DOIUrl":"10.1016/j.jcomm.2023.100381","url":null,"abstract":"<div><p>The analysis of option pricing in derivative markets<span> has commonly relied on the Black-Scholes model. This paper presents a conceptual and empirical analysis of option pricing with a focus on the validity of key assumptions embedded in the Black-Scholes model. Going beyond questioning the lognormality assumption, we investigate the role played by two assumptions made about the nature of price dynamics: quantile-specific departures from a unit root process, and the role of quantile-specific drift. Our analysis relies on a Quantile Autoregression (QAR) model that provides a flexible representation of the price distribution and its dynamics. Applied to the soybean futures market, we examine the validity of assumptions made in the Black-Scholes model along with their implications for option pricing. We document that price dynamics involve different responses in the tails of the distribution: overreaction and local instability in the upper tail, and underreaction in the lower tail. Investigating the implications of our QAR analysis for option pricing, we find that failing to capture local instability in the upper tail is more serious than failing to capture “fat tails” in the price distribution. We also find that the most serious problem with the Black-Scholes model arises in its representation of price dynamics in the lower tail.</span></p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100381"},"PeriodicalIF":4.2,"publicationDate":"2023-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139068163","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Gazi Salah Uddin , Brian Lucey , Md Lutfur Rahman , David Stenvall
{"title":"Quantile coherency across bonds, commodities, currencies, and equities","authors":"Gazi Salah Uddin , Brian Lucey , Md Lutfur Rahman , David Stenvall","doi":"10.1016/j.jcomm.2023.100379","DOIUrl":"10.1016/j.jcomm.2023.100379","url":null,"abstract":"<div><p><span>This paper examines quantile<span> coherency in bonds, commodities, currencies, and equities using a novel quantile coherency approach. While recent literature has explored single-frequency tail- and time-frequency dependence in </span></span>asset returns<span>, we provide fresh evidence on asset return dependence across quantiles (proxying business cycles or market conditions) at different frequencies (representing investment horizons). Considering sixty-seven individual asset return series in four asset classes, we observe that low frequency (yearly) dependence is stronger in the bond, foreign exchange, and equity markets. Specifically, we find strong dependence between the German and French bond markets, heating oil and crude oil, gold and silver, British Pound, and Euro, French and German and Canadian and US equities. As we report asset return interdependence in different business cycles and at different time horizons, these results have important implications for portfolio allocation and investment strategy formulation.</span></p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100379"},"PeriodicalIF":4.2,"publicationDate":"2023-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138992716","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Unveiling interconnectedness: Exploring higher-order moments among energy, precious metals, industrial metals, and agricultural commodities in the context of geopolitical risks and systemic stress","authors":"Jinxin Cui , Aktham Maghyereh","doi":"10.1016/j.jcomm.2023.100380","DOIUrl":"10.1016/j.jcomm.2023.100380","url":null,"abstract":"<div><p>This study investigates linkages and connectedness among geopolitical risks<span><span>, systemic stress, and commodity futures (energy, precious metals, industrial metals, and agricultural commodities). We combine the 22-day rolling ex-post higher-order moments with a novel Quantile-VAR extended joint connectedness framework. Our findings highlight the significant impacts of geopolitical risks and systemic stress on equicorrelations and </span>spillovers of the higher-order moment risks. The total spillovers of higher-order moments at the extreme upper (0.95) and lower (0.05) quantiles are notably higher than those at the median quantile. Geopolitical risks convey substantial net spillovers of higher-order moment risks to commodity futures, particularly in extreme market status. In normal market conditions, systemic financial stress also transmits notable spillovers to commodity futures. Moreover, the dynamic connectedness indices evolve across time and quantiles.</span></p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100380"},"PeriodicalIF":4.2,"publicationDate":"2023-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138691528","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Thomas Conlon , John Cotter , Emmanuel Eyiah-Donkor
{"title":"Forecasting the price of oil: A cautionary note","authors":"Thomas Conlon , John Cotter , Emmanuel Eyiah-Donkor","doi":"10.1016/j.jcomm.2023.100378","DOIUrl":"10.1016/j.jcomm.2023.100378","url":null,"abstract":"<div><p>We study the out-of-sample predictability of monthly crude oil prices using forecast combinations constructed from several individual predictor forecasts. Our empirical results indicate that combination forecasts of monthly average oil prices are more accurate than the no-change forecast with statistically significant reductions in mean square forecast errors (MSFE) and significant directional accuracy at every horizon up to 24 months, consistent with earlier evidence that forecast combinations greatly enhance the forecastability of oil prices. In contrast, we find no significant MSFE reductions or directional accuracy for forecasts of end-of-month oil prices at almost all horizons. Furthermore, we document that end-of-month forecasts when used to guide investment and hedging decisions of investors, statistically, do not deliver superior economic value to investors. Overall, the implication of our results is that the statistical and economic significance of forecasts of oil prices is heavily influenced by the construction of the underlying oil price series and provide a cautionary note on which oil price series to use in forecasting.</p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100378"},"PeriodicalIF":4.2,"publicationDate":"2023-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S2405851323000685/pdfft?md5=abf253efbd93c957b26617c9a11e916a&pid=1-s2.0-S2405851323000685-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138493142","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Francisco Pinto-Ávalos , Michael Bowe , Stuart Hyde
{"title":"Revisiting the pricing impact of commodity market spillovers on equity markets","authors":"Francisco Pinto-Ávalos , Michael Bowe , Stuart Hyde","doi":"10.1016/j.jcomm.2023.100369","DOIUrl":"https://doi.org/10.1016/j.jcomm.2023.100369","url":null,"abstract":"<div><p>This paper revisits the dynamics of pricing relationships between commodity and equity markets in a sample of commodity-exporting economies between 2000–2023. We confirm the correlation between these asset prices increases around episodes of financial distress. Prior research attributes this increase to the effects of contagion initiated by commodity price shocks. However, we find that after controlling for the effect of time varying risk aversion and investor sentiment, there is no evidence that the documented correlation increase originates from commodity market shocks. Indeed, we are unable to reject the hypothesis of no contagion. We maintain that controlling for the influence of time varying risk aversion and investor sentiment, together with other factors which potentially cause common variation across price movements in commodity and equity markets, is essential to accurately capturing the relationship between asset prices in these markets.</p></div>","PeriodicalId":45111,"journal":{"name":"Journal of Commodity Markets","volume":"33 ","pages":"Article 100369"},"PeriodicalIF":4.2,"publicationDate":"2023-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S2405851323000594/pdfft?md5=6a725fc6c4fd4933f36f92a7b1df1b83&pid=1-s2.0-S2405851323000594-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138480543","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}