Abstract
This paper employed wavelet coherence and partial wavelet coherence to investigate the time‐frequency effect of global economic policy uncertainty on the comovement of five agricultural commodities such as maize, oat, rice, soybean, and wheat using monthly data from January 1997 to December 2019. In general, we observed heterogeneity in comovement structures of the agricultural commodities market at different time‐frequency scales which are profound at high frequencies from the bivariate wavelet coherence. The partial wavelet coherence analysis shows that global economic policy uncertainty is a driver of agricultural commodity market connectedness. This implies that extreme changes in economic policy uncertainty have the tendency to influence commodity price comovement. This poses risk to the stability of the agricultural commodities market, which requires the policymaker’s intervention to protect against the spillover risk contagion effect in uncertain times.
Highlights
The financialization in commodity markets has changed the dependency structure of agricultural commodity markets [7, 8]
In the work of Amrouk et al [17], a multivariate CopulaDCC-GARCH model was employed to investigate the price dynamics among maize, wheat, soybeans, cotton, coffee, cocoa, and sugar futures prices. e results show that the intensity of interaction varies considerably over the sample time but is generally positive and stronger during the period 2007–2012 associated with high commodity prices and financial market stress
We expect that global economic policy uncertainty will lead to similar asset price comovements in global financial markets
Summary
The financialization in commodity markets has changed the dependency structure of agricultural commodity markets [7, 8]. Is study extends the literature on the EPU effect on asset correlations comovement and examines the effect of EPU on the comovement of agricultural commodities (maize, wheat, soya bean, rice, and oats) returns. E data set for this analysis consists of monthly data on global economic policy uncertainty (EPU) index and monthly period average price of the five major agricultural commodities—maize, wheat, soybean, rice, and oats from January 1997 to December 2019—yielding 276 observations.
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