Commodity Sector Research Articles

Volatility Spillover In Stock And Commodity Futures Market: Empirical Analysis In Indonesia’s Financial Market

Volatility spillover between stock markets causes insignificancy of diversification. Therefore, other investment alternatives is required to build an optimal portfolio, one of them being commodity futures. The low correlation between commodity futures and stocks indicates the advantage of diversification in investment portfolio containing both assets. In order to prove the advantage of diversification, author tested the existence of volatility spillover during September 16, 2010 - September 30, 2015. Estimation result using GARCH method indicates the presence of significant volatility spillover from stock exchange to commodity futures exchange. An important implication of this finding is that if the sectoral stock index and commodity futures are incorporated into an investment portfolio, the investor will not have optimal diversification advantage. This is because there is a correlation between performance of both markets as a result of both markets having the same characteristics in response to the shock that is coming.

Stakeholder Perceptions of the Environmental Effectiveness of Multi-stakeholder Initiatives: Evidence from the Palm Oil, Soy, Cotton, and Timber Programs

The roundtable on sustainable palm oil (RSPO), the round table on responsible soy (RTRS), the better cotton initiative (BCI), and the forest stewardship council (FSC) are examples of multi-stakeholder initiatives (MSIs), established to foster sustainable commodity production. While these programs are promoted as collaborative schemes for natural resource management, the significant gap in understanding of MSIs’ effectiveness presents a major concern over the credibility and legitimacy of such programs. We explore stakeholders’ perceptions of the environmental effectiveness of four MSIs in relation to their impacts in reducing agrochemical use and conserving habitats. We found that stakeholders feel positive about the role of the schemes in advocating environmental sustainability in the commodity sectors, and establishing norms of good practice. However, numerous issues, including the inadequate monitoring and evaluation contribute to perceptions of ineffectiveness and a lack of confidence in the schemes’ ability to drive fundamental transformation in environmental performance.

Factors of economic growth: Empirical analysis of industrialization and investments in technological upgrade

The article discusses the conditions of forming of a new industrial economic growth model. They are determined by the already established model of growth that is characterized by the dominance of the transactional sector, as well as the impact on the GDP dynamics of each of its components. The structural analysis of economic growth with the assessment of the industrialization level according to the authors’ criteria, as well as the empirical analysis of investments in various kinds of technologies that determine the economic system technological level, are conducted. The ‘general’ and ‘special’ industrialization criteria allow us to determine whether the economy is industrial by structure or by level of technological development. It is shown that the low level of industrialization, especially by the ‘special’ criterion, is not predetermined. The structure of investments in different kinds of technologies affects the economy technological level and its change. Policy measures aimed at the creation of a new model of industrial growth for the Russian economy, mechanical engineering and commodity sector should account for that.

The impact of air transportation on trade flows: A natural experiment on causality applied to Italy

Efficient air transportation services can boost regional economic development by allowing access to the world market, facilitating integration and labor mobility, and fostering local industries. In this regard, aviation can act as a means of both transporting traded “goods” and providing complementary services of labor mobility. The Lombardy region in Italy is an interesting case, as it is one of Europe's wealthiest and most industrialized areas with almost 10 million inhabitants. It has three of the top four Italian airports—Milan Malpensa (MXP), Bergamo Orio al Serio (BGY), and Milan Linate (LIN)—as well as a small airport in Brescia Montichiari (VBS) mainly used for cargo flights. On March 31, 2008, Malpensa Airport experienced the de-hubbing of Alitalia. This exogenous event allows us to study the relation between international trade and civil aviation by exploiting a quasi-natural experiment without endogeneity problems. We investigate this relation by estimating a before/after augmented gravity-econometric model applied to a panel data set for the period of 2004–2014. The data set includes, for each of the considered 30 European countries, information on trade flows divided by commodities sector, distance from Lombardy, GDP per capita, population, transport infrastructures and a set of other control variables. We estimate the gravity model under three different econometric specifications: random effect panel data, PPML, and PPML with fixed effects to include countries’ multilateral resistance. Furthermore we estimate a DID model as a robustness check for possible endogeneity among trade and aviation, using the region of Veneto (similar to Lombardy but not affected by the de-hubbing) as a control case. We find that civil aviation has a positive impact on international trade, with elasticity ranging from +0.003% to 0.13% in the different econometric specifications, and that this effect is stronger in high tech- and medium-tech manufacturing sectors.

Commodity price shocks and the distribution of income in commodity-dependent least-developed countries

Many least developed countries (LDCs) face commodity dependence on the export and import side. This paper develops a structuralist computable general equilibrium model for commodity-dependent LDCs and simulates global commodity price shocks for Burkina Faso, Ethiopia and Mozambique. Results show important macroeconomic and distributional effects. Although increasing export commodity prices are beneficial, the high correlation with import commodity prices causes low or even negative combined effects. The magnitude of effects depends on the degree of import and export dependence, the production structure of the key commodity sectors and policies that determine the distribution of windfall profits.

Analisis Keunggulan Komparatif Sektor Peternakan Di Kabupaten Hulu Sungai Utara

This study aims to discuss the application of Location Quotient (LQ) method in identifying superior commodities of livestock sector of each sub-district in Hulu Sungai Utara Regency. The research method used is descriptive quantitative research method, the data collected in this research is secondary data, this research will identify and analyze superior commodity sector or livestock base. Data analysis using Location Quotient method. The results showed that the livestock population is said to be superior or base if it meets the criteria of basic commodities. Leading commodities of the livestock sector in Hulu Sungai Utara Regency cover buffalo cattle and ducks in Paminggir District

Sharing a ride on the commodities roller coaster: Common factors in business cycles of emerging economies

We explore the hypothesis that fluctuations in commodity prices are an important driver of business cycles in small emerging market economies (EMEs). First, we document that commodity prices exhibit strong comovement with other macro variables along the business cycle of these economies; and that a common factor accounts for most of the time series dynamics of these commodity prices. Guided by these stylized facts, we embed a commodity sector into a dynamic, stochastic, multi-country business cycle model of EMEs where exogenous fluctuations in commodity prices coexist with other driving forces. Commodity prices follow a common dynamic factor structure in the model. When estimated with EMEs data, the model gives to commodity shocks, mostly in the form of perturbations to their common factor, a paramount role when accounting for aggregate dynamics: more than a third of the variance of real output across the EMEs considered is associated to commodity price shocks. The model also performs well when accounting for other business cycle facts. A further amplification mechanism is a “spillover” effect from commodity prices to interest rates. Yet, sometimes, positive commodity price shocks have also cushioned other negative domestic shocks, particularly during the fast recovery from the world financial crisis.

Jumps in Commodity Markets

This paper investigates price jumps in commodity markets. We find that jumps are rare and extreme events but occur less frequently than in stock markets. Nonetheless, jump correlations across commodities can be high depending on the commodity sectors. Energy, metal and grains commodities show high jump correlations while jumps of meats and softs commodities are barely correlated. Looking at crossmarket correlations, we find that returns of commodities co-move with the stock market, while jumps can be diversified. Most commodities are strong hedges for U.S. Dollar returns but weak hedges for U.S. Dollar jumps. Most commodities act as both return and jump hedges for Treasury notes.

Oil shock in the Caspian Basin: Diversification policy and subsidized economies

The recent oil price shocks of 2014 resulted in a substantial economic slowdown in the oil-exporting countries of the Caspian Basin, namely Russia, Kazakhstan and Azerbaijan. These resource-reliant countries have encountered a contraction not only in the commodity sector, but also in the non-oil sector due to poor diversification of the economy, and cuts in budget expenditure amid plunging oil prices. By analyzing the underlying causes of the current crisis, this paper concludes that, the economies of these countries are “subsidized economies”, or based on government spending financed by resource windfalls. The non-resource sectors in these oil-exporting countries were poorly developed prior to the crisis and failed to act as an avenue for diversification, lacking the potential to be export-oriented and sustainable. Russia, Kazakhstan, and Azerbaijan need to implement various reforms to support the diversification of the economy, including liberal measures such as eliminating barriers to market entry and promoting competition.

Valuation of the worldwide commodities sector

PurposeThis paper aims to empirically investigate the market-to-book/return on equity valuation model.Design/methodology/approachThe authors use a worldwide commodities sector panel of 6,323 firms from 69 countries with annual observations from 1999 to 2010 to estimate panel ordinary least squares (OLS), instrumental variables (IV) and quantile regressions. They also measure the impact of return on equity on market-to-book uncovering value versus growth and positive versus negative profitability dimensions.FindingsThe new evidence is that the impact of return on equity on market-to-book is time-varying and declining across the years in the sample. There is positive and strong persistence in the market-to-book of companies in this sector worldwide, but value stocks are more persistent than growth stocks. The coefficient of return on equity is positive at the 10th percentile of the market-to-book, but it becomes negative for growth stocks at 90th percentiles. Conditional on negative profitability, the coefficient of return on equity on market-to-book is negative for growth stocks. The effect of the S&P500 volatility index (VIX) is negative, significant and large in magnitude, but declines in absolute value, as the quantiles increase toward the upper 90th percentile.Practical implicationsThe commodities sector is important for countries that depend on it for development.Originality/valueThe paper provides a rich panel data approach, and the market-to-book/return on equity valuation model is naturally applied to the commodities sector, as this sector tends to have more tangibles relative to intangibles.

Export Performance and Competitiveness of Indonesian Food Commodities

The developments of the world trade requires the improvement of the competitiveness of products, including agricultural commodities. At the regional level, Indonesias agricultural commodities face the ASEAN free market competition. This study aims to identify and examine the competitiveness of Indonesian exports of several agricultural commodities in the international market by employing the index of competitiveness of trade specialization by trade specialization index (TSI), and the index of market penetration, by revealed comparative advantage (RCA). This study observed the HS 4 digit agricultural commodities, along 2011-2015. The study finds that the index of commodity trade specialization of estate crops sub-sector is in a stage of maturation of the world trade, or it has a very strong competitiveness. The food crops sub-sector stand on the introduction stage of the world trade or it has low competitiveness, or in other words, Indonesia is a net importer of the sector commodities. Although some of commodities have the strong competitiveness, but on the other hand, they do not have a strong comparative advantage. This is shown by the RCA value that less than 1. It means that a part of agricultural commodities, namely food crops, horticulture and estate, are still import oriented.The developments of the world trade requires the improvement of the competitiveness of products, including agricultural commodities. At the regional level, Indonesias agricultural commodities face the ASEAN free market competition. This study aims to identify and examine the competitiveness of Indonesian exports of several agricultural commodities in the international market by employing the index of competitiveness of trade specialization by trade specialization index (TSI), and the index of market penetration, by revealed comparative advantage (RCA). This study observed the HS 4 digit agricultural commodities, along 2011-2015. The study finds that the index of commodity trade specialization of estate crops sub-sector is in a stage of maturation of the world trade, or it has a very strong competitiveness. The food crops sub-sector stand on the introduction stage of the world trade or it has low competitiveness, or in other words, Indonesia is a net importer of the sector commodities. Although some of commodities have the strong competitiveness, but on the other hand, they do not have a strong comparative advantage. This is shown by the RCA value that less than 1. It means that a part of agricultural commodities, namely food crops, horticulture and estate, are still import oriented.

Inter-sector GDP Substitutability in Macro-Money Demand: Novel Evidence for India

The gross domestic product (GDP) as a scale variable in the macro-money demand function is justified only on the simplifying but verifiable assumption that the individual-sector GDPs have the same marginal money demand propensities. This assumption is easily verifiable by replacing the aggregate GDP with the services sector and commodity sector GDPs as two scale variables. The money demand propensities differ between these two sectors. To empirically verify this, a variable elasticity of substitution model is posited with these two sector GDPs as scale variables. This novel model permits us to estimate the parameter of elasticity of substitution between the two-sector GDPs .We expect the elasticity estimate to be greater than unity first and decrease towards unity later in the post-liberalization period 1992-2012 and this ensures a unitary income elasticity of demand for money for the aggregate GDP. For the pre-liberalization period (1971 to 1991) we expect the substitutability between the two sectors to be either less than unity or even negative. The policy implication of disparate sector-GDP growth rates for money demand should not be ignored in an emerging economy of India, where the GDP structure evolves towards invariance as in a developing economy.

Mining Spillovers in Chile

Chile’s small open economy with significant mismatch between the production and consumption baskets may be represented by three stylized sectors, a commodity sector, a non-commodity tradable sector, and a non-tradable sector. This paper estimates the effect of copper price shocks on mining, manufacturing, and construction—each embodying a sector type. The empirical findings are for positive spillovers from mining to the other two sectors. However, the estimated size of the spillovers seems modest, which raises the question of the potential for mining to be better integrated with the rest of the economy.

Maximum diversification strategies along commodity risk factors

AbstractPursuing risk‐based allocation across a universe of commodity assets, we find diversified risk parity (DRP) strategies to provide convincing results. DRP strives for maximum diversification along uncorrelated risk sources. A straightforward way to derive uncorrelated risk sources relies on principal components analysis (PCA). While the ensuing statistical factors can be associated with commodity sector bets, the corresponding DRP strategy entails excessive turnover because of the instability of the PCA factors. We suggest an alternative design of the DRP strategy relative to common commodity risk factors that implicitly allows for a uniform exposure to commodity risk premia.

Forecasting the Australian economy with DSGE and BVAR models

ABSTRACTReflecting the importance of commodities for the Australian economy, we construct a dynamic stochastic general equilibrium (DSGE) model of the Australian economy with a commodity sector. We assess whether its forecasts can be improved by using it as a prior for an empirical Bayesian vector autoregression (BVAR). We find that the forecasts from the BVAR tend to be more accurate than those from the DSGE model. Nevertheless, for output growth these forecasts do not outperform benchmark models, such as a small open economy BVAR estimated using the standard priors for forecasting. A Bayesian factor augmented vector autoregression produces the most accurate near-term inflation forecasts.

Dynamic of consumer groups and response of commodity markets by principal component analysis

This study investigates financial states and group dynamics by applying principal component analysis to the cross-correlation coefficients of the daily returns of commodity futures. The eigenvalues of the cross-correlation matrix in the 6-month timeframe displays similar values during 2010–2011, but decline following 2012. A sharp drop in eigenvalue implies the significant change of the market state. Three commodity sectors, energy, metals and agriculture, are projected into two dimensional spaces consisting of two principal components (PC). We observe that they form three distinct clusters in relation to various sectors. However, commodities with distinct features have intermingled with one another and scattered during severe crises, such as the European sovereign debt crises. We observe the notable change of the position of two dimensional spaces of groups during financial crises. By considering the first principal component (PC1) within the 6-month moving timeframe, we observe that commodities of the same group change states in a similar pattern, and the change of states of one group can be used as a warning for other group.

How Facilitating Trade would Benefit Trade in Sub-Saharan Africa

Abstract Despite a significant trade expansion that has been above the world average in the recent period, Sub-Saharan Africa still remains relatively marginalized in the world trading system. This paper sets out to analyze the extent to which various elements of the trade cost landscape in the sub-continent may have contributed to shape trade patterns both within the region and with the outside world. Different trade facilitation measures such as border efficiency, physical infrastructure, regulatory environment, information and communication technology, and the World Bank's Logistics Performance Index are related to bilateral trade flows in a gravity framework. The study finds, based on the Poisson pseudo-maximum likelihood estimation, that raising (raising) the quality of the trading environment of (the subcontinent) the sub-continent to the level of the world average would generate significant export gains that amount to reducing bilateral geographical distance by between 1.7 to 10.1 percent or cutting ad valorem tariff by between 1.4 and 10.2 percentage-points. The extent of the gains varies greatly across the trade facilitation measures, commodity sectors, export destinations, as well as which trading partner undertakes the corresponding reforms. These results offer a strong basis for designing targeted trade facilitation reforms that would improve Africa's international trade position in the wake of the recent success of WTO's trade negotiations.

Passive ultra high frequency radio frequency identification systems for single-item identification in food supply chains

In the food industry, composition, size, and shape of items are much less regular than in other commodities sectors. In addition, a wide variety of packaging, composed by different materials, is employed. As material, size and shape of items to which the tag should be attached strongly influence the minimum power requested for tag functioning, performance improvements can be achieved only selecting suitable radio frequency (RF) identifiers for the specific combination of food product and packaging. When dealing with logistics units, the dynamic reading of a vast number of tags could originate simultaneous broadcasting of signals (tag-to-tag collisions) that could affect reading rates and the overall reliability of the identification procedure. This paper reports the results of an analysis of the reading performance of ultra high frequency radio frequency identification systems for multiple static and dynamic electronic identification of food packed products in controlled conditions. Products were considered when arranged on a logistics pallet. The effects on reading rate of different factors, among which the product type, the gate configuration, the field polarisation, the power output of the RF reader, the interrogation protocol configuration as well as the transit speed, the number of tags and their interactions were statistically analysed and compared.

"Green Economy" as the Country's Development Strategy with a High Share of the Commodity Sector in the Context of Globalization

The "Green economy" is a economy, aimed at preserving a well-being of society through the effective use of natural resources and ensuring return of end-use products in the production cycle. First of all, the "green" economy focused on economic use of the resources that are currently subject to depletion (natural resources-oil, gas) and the rational use of inexhaustible resources. The "Green economy" is one of the important tools for ensuring sustainable development of the country. Development of the "green economy" will allow Kazakhstan to avoid the ecological crisis, which has affected many post-industrial countries. The major objective of this study is to determine the readiness of the country to a path of the "green growth" reform, based on the principles of the sustainable development. In order to determine the country's place in the world, the methods of multivariate statistical analysis applied to establish criteria in relation to global indicators. As a result, on the basis of this criteria the share of investment for certain developed and developing countries was calculated, which should be directed to the economy transformation. According to our calculations, the countries with a high share of mining sector require a radical restructuring of the economy. Thus, developed countries and countries with high human development index and low levels of corruption have a better chance for a successful implementation of the reforms on the path of the "Green growth". Kazakhstan, Russia and other countries with low economic, social and political indicators of readiness to the "Green Economy" transition have a long way to socio-economic and political transformation towards efficient economy, civil society and development of the state.

Momentum in International Commodity Futures Markets

This paper examines whether commodity futures momentum can predict business cycles in the US, China, UK, Japan, and India. Momentum as a risk factor may play a role as a state variable in the spirit of Liew and Vassalou (). We find significant and negative predictability of commodity futures momentum, although the basis factor of the commodity futures markets shows insignificant results. Moreover, we find that commodity futures momentum is an independent factor that cannot be fully explained by traditional risk factors, macroeconomic variables, or commodity sector momentum. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark 37:803–835, 2017