Commodity Markets Volatility Transmission

Roles of Risk Perceptions and Uncertainty in Financial Markets

Giray Gozgor, Chi Keung Marco Lau, Mehmet Huseyin Bilgin

Research output: Contribution to journalArticle

15 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)35-45
Number of pages11
JournalJournal of International Financial Markets, Institutions and Money
Volume44
Early online date3 May 2016
DOIs
Publication statusPublished - Sep 2016
Externally publishedYes

Fingerprint

Soybean
Market volatility
Uncertainty
Corn
Volatility transmission
Commodity markets
Risk perception
Financial markets
Crude oil
Wheat
Agricultural commodities
Empirical results
Market returns
Measure of risk
Futures markets
Equity markets
Volatility index
Price volatility
Market uncertainty

Cite this

@article{ae837bfe032e4efcaefe37770c0f5a52,
title = "Commodity Markets Volatility Transmission: Roles of Risk Perceptions and Uncertainty in Financial Markets",
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.",
keywords = "Uncertainty, Risk perceptions, The VIX, Volatility spillover, Financial markets, Futures markets, Commodity markets, Crude oil markets",
author = "Giray Gozgor and Lau, {Chi Keung Marco} and Bilgin, {Mehmet Huseyin}",
year = "2016",
month = "9",
doi = "10.1016/j.intfin.2016.04.008",
language = "English",
volume = "44",
pages = "35--45",
journal = "Journal of International Financial Markets, Institutions and Money",
issn = "1042-4431",
publisher = "Elsevier BV",

}

TY - JOUR

T1 - Commodity Markets Volatility Transmission

T2 - Roles of Risk Perceptions and Uncertainty in Financial Markets

AU - Gozgor, Giray

AU - Lau, Chi Keung Marco

AU - Bilgin, Mehmet Huseyin

PY - 2016/9

Y1 - 2016/9

N2 - 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.

AB - 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.

KW - Uncertainty

KW - Risk perceptions

KW - The VIX

KW - Volatility spillover

KW - Financial markets

KW - Futures markets

KW - Commodity markets

KW - Crude oil markets

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JF - Journal of International Financial Markets, Institutions and Money

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