Modelling the mean and volatility dynamic relationship between the environmental risk or exchange rate volatility surprise and Commodity Research Bureau future price index

Abstract

This paper focuses on volatility interactions between energy, agricultural, and environmental risk (proxy variable, DJSI) and exchange rate volatility surprise. Using five MGARCH models, our empirical results present significant own short-term and long-term persistence effects and also cross-market spillover short-term and long-term persistence effects among energy, agricultural, and environmental risk for the pre- and post-2008 financial crisis. This paper also finds that the mean and volatility spillover effects are more significant post the financial crisis than for the pre-crisis period, implying that the impact of the financial crisis is bigger post the crisis. The results provide strong evidence of spillover effects coming from the volatility surprise across markets.