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Abstract
Securitization of the agricultural commodity market has accelerated since the beginning of the 21st century, particularly in the times of financial market uncertainty and crisis. Sugar belongs to the group of important agricultural commodities. The global financial crisis and the COVID-19 pandemic has caused a substantial increase in the stock market volatility. Moreover, the novel coronavirus hit both the sugar market’s supply and demand side, resulting in sugar stock changes. The paper aims to assess potential structural changes in the relationship between sugar prices and the financial market uncertainty in a crisis time. In more detail, using sequential Bai–Perron tests for structural breaks, we check whether the global financial crisis and the COVID-19 pandemic have induced structural breaks in that relationship. Sugar prices are represented by the S&P GSCI Sugar Index, while the S&P 500 option-implied volatility index (VIX) is used to show stock market uncertainty. To investigate the changes in the relationship between sugar prices and stock market uncertainty, a regression model with a sequential Bai–Perron test for structural breaks is applied for the daily data from 2000–2020. We reveal the existence of two structural breaks in the analysed relationship. The first breakpoint was linked to the global financial crisis outbreak, and the second occurred in December 2011. Surprisingly, the COVID-19 pandemic has not induced the statistically significant structural change. Based on the regression model with Bai–Perron structural changes, we show that from 2000 until the beginning of the global financial crisis, the relationship between the sugar prices and the financial market uncertainty was insignificant. The global financial crisis led to a structural change in the relationship. Since August 2008, we observe a significant and negative relationship between the S&P GSCI Sugar Index and the S&P 500 option-implied volatility index (VIX). Sensitivity analysis conducted for the different financial market uncertainty measures, i.e., the S&P 500 Realized Volatility Index confirms our findings.
Highlights
After the collapse of the equity market in 2000, commodities have become an important alternative investment asset class [1,2]
This paper investigates the structural changes in the relationship between sugar prices and financial market uncertainty, measured by the volatility index (VIX) Index
We focused on two main crisis periods in the 21st century: the global financial crisis and the COVID-19 pandemic
Summary
After the collapse of the equity market in 2000, commodities have become an important alternative investment asset class [1,2]. The process, known as the financialisation of commodities [4], has been widely observed in the global markets [4,5,6]. It was partially a result of neoliberal policies carried out in the 1980s, which advocated agricultural sector liberalisation [7]. The empirical literature studies the relationship between economic and systemic shocks and the volatility in the commodity markets It argues that some evidence shows the effects of market shocks in the time of crisis on commodity market volatility [10,11,12]. We focus on the two main crisis periods in the 21st century, i.e., the global financial crisis and the COVID-19 pandemic
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