Situated Information Flow between Food Commodity and Regional Equity Markets: An EEMD‐Based Transfer Entropy Analysis

Abstract

The intrinsic information shared by financial assets provides a means of assessing their mutual linkages. In times of crisis, spillovers and information flow between markets increase, and this drives empirical investigations into the degree of connectedness between financial assets. In the context of commodity markets, empirical evidence about the mutual information shared and its influence on portfolio management is largely unknown. This study examines the situated information between the food commodities (cereals, dairy, food, meat, vegetable oil, and sugar) of the FAO and regional stock markets’ returns. From the ensemble empirical mode decomposition (EEMD)‐based Rényian transfer entropy analysis employed, we find significant bidirectional information flow between the food commodities and regional equity markets. Our findings divulge that the diversification potentials of food commodities rest in the long term, with sugar being a consistent diversifier across all investment horizons. The investment and policy implications of our findings are further discussed.