Abstract
This study examines the nature and dynamics of volatility spillovers between crude oil and agricultural commodity markets since the 2008–09 financial crisis. We tested for volatility spillovers with a flexible bivariate heterogeneous autoregressive model to identify the short-, mid-, and long-term spillover effects. We observed bidirectional spillovers of short-term volatilities between crude oil and agricultural commodity markets in the crisis period, compared to mid-term and long-term volatilities of corn being transmitted to the crude oil volatility in the post-crisis period. These findings suggest that crude oil and agricultural commodity markets have become less integrated after the 2008–09 crisis.
Highlights
Agricultural commodity prices displayed exceptional volatility before the 2008–09 financial crisis
We investigated the differences in volatility spillovers during (1) the 2008–09 financial crisis period and (2) the post-crisis period, which contained a period of drought-induced higher agricultural commodity prices in 2012–13
Given that each bivariate heterogeneous autoregressive (HAR) model contains crude oil, we tested for Equation (5) when the dependent variable was crude oil prices, and found that a break point exists on 8 December 2009
Summary
Agricultural commodity prices displayed exceptional volatility before the 2008–09 financial crisis. A rich literature has offered various possible reasons for the strong fluctuations in agricultural commodity prices [2,3,4]. One strand of the literature points to volatility spillovers from crude oil prices [5,6]. Two main channels have been identified to transmit volatility: the biofuel and financialization channels. The financialization of commodities has created a channel to establish a strong connection among markets, but has itself increased price volatility. These two channels transmit volatility from crude oil to agricultural commodity markets, and vice versa
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