Volatility spillovers in commodity markets

Abstract

This article investigates volatility spillovers in commodity markets by following the methodology pioneered in Diebold and Yilmaz (2012). By using a broad data set during 1995–2012, we address three key research questions: are there volatility spillovers within commodities? between standard assets and commodities? between commodities and commodity currencies? The main results indicate first that commodities exhibit weaker than other asset classes volatility spillovers. These spillovers have, however, been increasing over the period. Second, agricultural commodities are the commodities exhibiting the lowest spillovers, whereas precious metals and energy are the biggest net contributors. In a diversified portfolio, including commodities – and especially agricultural products – helps decreasing the total spillover index. This stylized fact has, however, been less and less valid over the years. Third, some currencies are more responsive than others to commodity volatility spillovers.