Energy and non-energy commodities: An asymmetric approach towards portfolio diversification in the commodity market

Abstract

We investigate the presence of short- and long-run asymmetric relationships between energy and non-energy commodities for weekly data from January 2010 to June 2018. Using the non-linear ARDL methodology, we show that oil prices have significant long-run negative effects on the prices of gold and silver, indicating that for both metal commodities, oil price increases lead to more decrease than the subsequent oil prices decrease. Crude oil, among other energy commodities, is found to offer more diversification benefits when combined with gold or silver; however minimal diversification benefits can result from combining crude oil with wheat or platinum. Gas futures, among other energy markets, offer more diversification opportunities when combined with copper, wheat, platinum or palladium, while coal offers maximum diversification benefits when combined with gold, silver or wheat. Our results are robust when NARDL is applied to the daily data and also when the analysis is conducted using the causality-in-quantiles test.