Price Volatility Spillovers Research Articles

The Dynamic Spillover between Renewable Energy, Crude Oil and Carbon Market: New Evidence from Time and Frequency Domains

To obtain the price return and price volatility spillovers between renewable energy stocks, technology stocks, oil futures and carbon allowances under different investment horizons, this paper employs a frequency-dependent method to study the dynamic connectedness between these assets in four frequency bands. The results show that, first, there is a strong spillover effect between these assets from a system-wide perspective, and it’s mainly driven by short-term spillovers. Second, in the time domain, technology stocks have a more significant impact on renewable energy stocks compared to crude oil. However, through the study in the frequency domain, we find renewable energy stocks exhibit a more complex relationship with the other two assets at different time scales. Third, renewable energy stocks have significant spillover effect on carbon prices only in the short term. On longer time scales, other factors such as energy prices, climate and policy may have a greater impact on carbon allowance prices. Fourth, the spillover effect of the system is time-varying and frequency-varying. During the European debt crisis, the international oil price decline and the COVID-19 pandemic, the total spillover index of the system has experienced a substantial increase, mainly driven by medium, medium to long or long term spillovers.

Dynamics of price volatility spillover in the U.S. catfish market

The U.S. catfish aquaculture industry is arguably one of the earliest aquaculture segments in the world to industrialize, and a pioneer in demonstrating the benefits of innovation-driven aquaculture supply chain development over wild-harvested fisheries. However, the industry substantially contracted through the 2003–2013 period. High and volatile feed prices, volatile farm prices, a rapid surge in low-priced imports, and a strict regulatory compliance burden on a maturing industry are thought to be some of the major factors causing this decline. We analyze the price volatility spillovers in the U.S. catfish industry and the related feed/feed ingredient markets. Our empirical model is the multivariate generalized autoregressive conditional heteroscedasticity (GARCH) model allowing for cross-market and own-market impacts from shocks and volatilities in prices. Our results indicate bidirectional spillovers among catfish market prices and most of the feed ingredient prices.

Price Discovery and Volatility Spillover in Commodity Futures and Spot Market in India: An Empirical Analysis

Purpose: This paper aims to investigate the price discovery process, persistence of volatility and spillover of volatility in commodity futures and spot market in India. Methodology: In this paper, commodities namely, mentha oil, cotton, gold and aluminium have been selected to explore the process of price discovery, volatility persistence and spillover of volatility using cointegration test, vector error correction (VECM), granger causality and GARCH model. Findings: The results of VECM suggest that price discovery takes place in futures market in case of all commodities except for mentha oil where price discovery occurs in spot market. The Block Exogeneity Wald test (granger causality) results also show that futures market has stronger ability to predict the spot prices. The results of GARCH model indicate that volatility is persistent for all commodities except mentha oil futures return. In the support of VECM and granger causality test results, GARCH model results also indicate that volatility spillovers from futures return to spot return for all selected commodities except cotton where volatility spillovers from spot return to futures return. Practical Implications: The findings of this study significantly contribute to the Indian commodity derivatives market literature and useful for future researchers, investors, hedgers, economists and policy makers. Originality: There are very few studies that have examined the price discovery process and spillover of volatility using combination of both agricultural and nonagricultural commodities in India.

Crude Oil Price Shocks, Volatility Spillovers and Global Systemic Financial Risk Transmission Mechanisms: Evidence from the Stock and Foreign Exchange Markets

Crude Oil Price Shocks, Volatility Spillovers and Global Systemic Financial Risk Transmission Mechanisms: Evidence from the Stock and Foreign Exchange Markets

Housing market spillovers through the lens of transaction volume: A new spillover index approach

Proposing and applying a new spillover index approach based on data-determined structural vector autoregression to measure connectedness, we examine the daily housing market information transmission via transaction volume among Chinese city-level housing markets from 2009 to 2018. We document substantial information transmission on Chinese housing markets even within one day and find that the role a city-level housing market may play in the information transmission network resembles a pattern observed on other financial markets, which can be generally classified into three distinctive groups: prime senders, exchange centers, and prime receivers. City hierarchy and some fundamental economic factors, such as GDP per capita and average wage, appear to be significant determinants of such a pattern. The findings extend the existing voluminous literature solely based on housing prices or price volatility spillovers and shed new light on the China’s government intervention strategy on the housing market. • A new spillover index approach based on data-determined structural VAR. • First evidence on housing market information spillovers via volume. • First evidence on substantial housing market information spillover (via volume) even within one day. • The informational transmission via volume is also fundamentals-based.

Price transmission in European fish markets

ABSTRACT We investigate price transmission in European fisheries markets. To start, we identify clusters of fish species both cross-regionally and within countries. A major issue in the clustering exercise is missing data due to reporting issues and seasonality in landed fish catches. To handle this we implement k-POD clustering which unlike traditional k-means clustering is able to account for missing data in clustering. Next, we move on to our primary goal of investigating price transmission through modelling price volatility spillovers. A missing value VAR framework is applied to identify directional spillovers among fish prices within clusters. We show that the directional volatility spillover effect is more prominent within each country for different species clusters than that for species cross-regionally. This suggests price transmission within localized markets for fish, rather than cross-regional markets for individual species. Although there are some neighbour country effects and some species that appear to be priced cross-regionally. Our study is the first to explore these multiple fish pricing dynamics, particularly taking account of the important issue of missing data which is a notable feature of fish pricing data.

Price Discovery and Volatility Spillover for Indian Energy Futures Market in the Pre- and Post-Crisis Periods

The present paper examined the price discovery and volatility spillovers in pre and post-crisis (global financial crisis and European sovereign debt crisis) periods of spot and futures energy markets in India from January 1, 2007 – December 31, 2018, with the help of closing price series listed on the Multi Commodity Exchange Limited (MCX) for both spot and futures crude oil and natural gas markets. The data were examined using Johansen cointegration test, vector error correction (VEC) model, autoregressive distributed lag (ARDL) model, and Glosten-Jagannathan-Runkle generalized autoregressive conditional heteroscedasticity (GJR-GARCH) model to measure the price discovery and volatility spillovers. For price discovery, most of the sample cases had a long-run equilibrium relationship between their spot and futures prices, and the futures (spot) market led the spot (futures) market in the long-run in most sample periods (post-ESDC period). In case of volatility spillover, most of the results concluded the dominance of the futures market over the spot market except crude oil in the post-ESDC period. All these factors made the futures market more efficient and cost-competitive in terms of price discovery. So, it can be concluded that the market participants may depend on the futures market’s price changes for their investment and trading decisions. The results of during and post-crisis periods may be helpful for the current investors for modification of their optimum portfolio. Investors and policy makers may draw meaningful conclusions and become prepared for the next crisis period.

Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India

PurposeThis paper aims to investigate price responses and volatility spillovers between commodity spot and futures markets. The study ultimately seeks the evidence-based claims on the efficiency of the long run and short run horizontal price transmissions from futures markets to spot markets.Design/methodology/approachThis study used the most recent daily price series of pepper, cardamom and rubber, during the period 2004–2019, use “cointegration-ECM-GARCH framework” and verify the persisting validity of the “expectancy theory” of commodity futures pricing.FindingsThe results offer overwhelming evidence of futures market dominance in the price discoveries and volatility spillovers in spot markets. However, this paper finds asymmetric responses between cash and futures prices across markets. The hedging efficiency of futures contracts is commodities specific’ where spices futures are more efficient than the rubber futures.Practical implicationsThe study passes on vital information to the producers and traders of spices and rubber who have a potential interest in the use of futures contracts to make profits from arbitrage between futures and cash markets.Originality/valueThe paper is unique in terms of understanding asymmetric price linkages in markets for plantation crops.

Who leads in intraday gold price discovery and volatility connectedness: Spot, futures, or exchange‐traded fund?

AbstractGold exchange‐traded funds (ETFs) have amassed massive inflows from institutional investors globally. We examine intraday price discovery and volatility connectedness among three gold instruments—spot, futures, and ETF—across mature and emerging gold markets in domestic and international settings from 2010 to 2018. Using the network approach, we find that gold futures are a global leader in price discovery and volatility spillover. However, during 2016–2018, physical‐gold‐backed ETF and spot challenge the futures' leadership in New York and Shanghai. Intraday variation in price discovery leadership is due to liquidity, hedging effectiveness, price jumps, investor attention, and macroeconomic states.

Information Transmission between China’s IH and SGX FTSE A50 Stock Index Futures Markets: The Role of Trading Restrictions

ABSTRACT After China’s stock market crash in 2015, the Chinese government imposed a series of trading restrictions on the stock index futures market. This paper examines how the relative informational role of China’s IH stock index futures and the SGX FTSE China A50 index futures varies when market trading mechanisms are subject to these major changes. We find that imposing the trading restrictions on IH futures substantially undermines their role in price discovery and volatility spillover, and renders them more susceptible to the fluctuations of A50 futures. Importantly, even after the trading restrictions are greatly eased at a later date, the importance of IH futures in price discovery and volatility spillover relative to that of A50 futures remains at a level much lower than before. Changes in liquidity and trading volumes imply that imposing the trading restrictions on IH futures drives investors to flee the IH futures market, but relaxing these restrictions is not able to attract investors back, making it difficult for IH futures to resume its important role in information transmission.

The US equity sectors, implied volatilities, and COVID-19: What does the spillover analysis reveal?

This study examines the spillover role of the implied volatilities of oil, gold, and the stock market with US equity sectors. Using time and frequency-based spillover methods, we find that the market’s expectation of oil price volatility (OVX) spillovers less strongly on the US sectoral returns than the market’s expectation of US stock market volatility (VIX), which exhibits the dominant spillover role. The market’s expectation of gold price volatility (GVZ) has a zero range spillover effect on the sectoral returns and is the most weakly affected by them, suggesting that gold can be used to hedge downside risk in all 10 US equity sectors considered. We also find that the US equity sectors’ spillovers on the VIX and OVX strengthen because of the coronavirus (COVID-19) outbreak.

Analysis of lead-lag relationship and volatility spillover: evidence from Indian agriculture commodity markets

This study examines the lead-lag relationship and volatility spillover in the Indian commodity derivatives market. The study has been conducted with ten commodities based on the availability of data and liquidity for the period of 2010 to 2020. Augmented dickey-fuller (ADF) test is used to check the stationarity of the price series. The study uses Johansen's cointegration test to check for the long-run relationship between the spot and the futures market. VECM and EGARCH(1,1) analysis is performed to examine the market efficiency, price discovery relationships, short-run relationships, and volatility spillover in Indian commodity markets. The study found efficiency in both the future and the spot market. Futures market leads spot markets for some commodities and absorbs the information shock faster and hence are more efficient and the same is verified by Granger causality. There is also evidence of bidirectional causality. The study found leverage effect, persistence effect, and volatility spillover effect for spot and futures markets.

Co-movement of prices between biofuel co-products in Canada: ethanol, electricity, and pellets

The potential emergence of a second-generation ethanol industry in Canada will depend on future production technologies and prices. Financial viability might be improved by producing cellulosic ethanol with co-products such as lignin pellets or electricity. Financial returns to ethanol production will depend on price variability and possible price spillovers among ethanol and its co-products. We use a multivariate BEKK–GARCH approach to investigate past mean price interactions and volatility spillovers between ethanol and electricity prices. Wood pellets are investigated in a univariate framework because of data constraints. Results show substantial price interactions and volatility spillovers among these products. If a second-generation ethanol industry emerges, co-production of products from common feedstocks may strengthen already established relationships between the prices of these energy products. These conditions could create increased risk and the clustering of high–low price fluctuations among co-products. For investors, results suggest that risk reduction strategies should protect against correlated volatility. For policy makers, results suggest that policies that target one commodity may lead to unintended impacts on co-product(s). In sum, understanding links between markets is important for designing future policies and for insights into how a second-generation ethanol industry may emerge.

Price discovery and spillover dynamics in the Chinese stock index futures market: a natural experiment on trading volume restriction

This paper considers CSI 300 Index futures and the underlying index from April 2010 to December 2018 based on high frequency data to test the price discovery function and spillover dynamics of the futures market given the change in futures market regulation in September 2015. The new regulation restricted the futures market intraday trading volume. This can be considered a natural experiment, offering us the opportunity to explore the factors that affect the price discovery function of the Chinese futures market. Information shares, the price lead-lag relationship, intraday returns and volatility spillovers are tested to reflect the price discovery function at both the long- and short-term intraday levels. We further compare the two subsamples before and after the regulation using static and dynamic approaches. The results suggest that shortly after the new regulation, the futures market was more sensitive to new information which dominated the price discovery process. However, the price discovery function of a futures market became much weaker after the regulation in the long run, due to a lack of liquidity. The regulation increased only the short-run price leading effect of the futures market and stabilised the market by limiting intraday arbitrage. We find that margin trading in the stock market significantly affects the price discovery ability of the futures market. Specifically, our results indicate that the Chinese stock index futures market was not the driving force of the market crash in 2015.

How does the self-sufficiency rate affect international price volatility transmissions in the wheat sector? Evidence from wheat-exporting countries

Research on international food prices or volatility transmission have concentrated on importing countries and have largely underestimated the importance of food insecurity or food poverty issues in food-exporting countries. This article identifies the causality between global and regional wheat pric in exporting countries and explores the determinants of price volatility pass-throughs using a Glosten, Jagannathan and Runkle generalised autoregressive conditional heteroskedasticity (GJR-GARCH) model with dynamic conditional correlation (DCC) specifications. Findings indicate that causal relationships between world and local prices are bi-directional and that self-sufficiency plays an important role in reducing international price volatility spillovers. Moreover, the consumption of substitute goods such as maize or rice functions as a shock absorber, alleviating volatility transmissions from the international market. Due to the COVID-19 crisis, food prices are more destabilised in many countries, along with various factors such as Russia’s and Kazakhstan’s export restrictions on grain commodites and international transport and supply chain disruptions. Based on the findings of our analysis, high self-sufficiency or autarky policies could help resilience to the shocks from these unexpected events against local retail markets in exporting countries such as the United States.

Price discovery and volatility spillover: an empirical evidence from spot and futures agricultural commodity markets in India

PurposePrice discovery and spillover effect are prominent indicators in the commodity futures market to protect the interest of consumers, farmers and to hedge sharp price fluctuations. The purpose of this paper is to investigate empirically the price discovery and volatility spillover in Indian agriculture spot and futures commodity markets.Design/methodology/approachThis study uses Granger causality, vector error correction model (VECM) and exponential generalized autoregressive conditional heteroskedasticity (EGARCH) to examines the price discovery and spillover effects for nine most liquid agricultural commodities in spot and futures markets traded on National Commodity and Derivatives Exchange (NCDEX).FindingsThe VECM results show that price discovery exists in all the nine commodities with futures market leading the spot in case of six commodities, namely soybean seed, coriander, turmeric, castor seed, guar seed and chana. Whereas in case of three commodities (cotton seed, rape mustard seed and jeera), price discovery takes place in the spot market. The Granger causality tests indicate that futures markets have stronger ability to predict spot prices. Supporting these, the results from EGARCH volatility test reveal that there exist mutual spillover effects on futures and spot markets. Thus, it could be inferred that futures market is more efficient in price discovery of agricultural commodities in India.Research limitations/implicationsThese results can help the market participants to benefit by hedging out the uncertainty and the policymakers to design futures contracts to improve the efficiency of the agricultural commodity derivatives market.Practical implicationsThe findings provide fresh view on lead–lag relationship between future and spot prices using the latest data confirming that futures market indeed is dominant in price discovery.Originality/valueThere are very few studies that have explored the efficiency of the agricultural commodity spot and futures markets in India using both price discovery and volatility spillover in a detailed manner, especially at the individual agriculture commodity level.

Movements in international bond markets: The role of oil prices

In this paper, we analyze daily data-based price transmission and volatility spillovers between crude oil and the bond markets of major oil exporters and importers, accounting for structural shifts as a smooth process in causality and volatility spillover estimations. In general, we find that oil prices tend to predict bond prices in the majority of oil exporting countries and two large oil importers (India and China). The feedback from bonds to oil prices is weak and detected only for China and the USA. Oil volatility affects the bond market volatility of some major oil exporters (Kuwait, Norway, and Russia) and one importer (France). However, the most prominent volatility spillovers are from bonds to oil, except for Kuwait and Saudi Arabia. We reveal that taking structural shifts into account strengthens our findings and is particularly important for volatility spillover analysis.

Analysis of meat price volatility and volatility spillovers in Finland

Unforeseen important changes in price can present a significant risk in the market. The price fluctuation of agricultural commodities has raised concern for studying the volatility of different agricultural products. A persistent volatility in prices causes continued uncertainty in the market. Higher price volatility is to be mitigated by higher management costs and the higher cost of risk mitigation is often converted into higher producer prices. The aim of this paper is to investigate the price volatility of producer and consumer meat prices and to capture the volatility spillover along the Finnish meat supply chain. The Generalised Autoregressive Conditional Heteroskedasticity – Baba, Engle, Kraft and Kroner (GARCH-BEKK) model is applied to analyse shocks and volatilities of the prices and to estimate whether the price volatility is flowing from the first price level (producer) to the second price level (consumer), using monthly price indices. An asymmetric volatility spillover effect was detected in the poultry meat and a unidirectional, volatility spillover effect, from consumer to producer, is observed for pork prices. The findings of this study could serve as a tool for forecasting meat producer and consumer prices, which could assist the Finnish government with endorsing policy options to alleviate the price volatility impact, to protect both consumers and producers from its negative effects.

Price discovery and volatility spillovers in commodity market: a review of empirical literature

The purpose of this paper is to organise the present status of researches conducted on commodity market relationship, price discovery and volatility spillovers by reviewing the available literature. Other objectives of the present study are to classify the past studies under various categories, to provide an inclusive bibliography on the said topic and to evaluate the results of the studies taken into consideration by various researchers. Different sources were probed to review the past studies and out of thousands of paper, 130 research papers were considered, forming the sample for the present study. It was found that the research work on this topic has surged from 2010 to 2017, thus gaining consistently higher attention since then. The present study will aid academicians, practitioners future researchers, policy makers and other relevant stakeholders in studying the existing research work, as well as in setting the directions for future research work related to same subject area and use of such data in any field that can be contribute in a resourceful manner.

Price discovery and volatility spillovers in commodity market: a review of empirical literature

The purpose of this paper is to organise the present status of researches conducted on commodity market relationship, price discovery and volatility spillovers by reviewing the available literature. Other objectives of the present study are to classify the past studies under various categories, to provide an inclusive bibliography on the said topic and to evaluate the results of the studies taken into consideration by various researchers. Different sources were probed to review the past studies and out of thousands of paper, 130 research papers were considered, forming the sample for the present study. It was found that the research work on this topic has surged from 2010 to 2017, thus gaining consistently higher attention since then. The present study will aid academicians, practitioners future researchers, policy makers and other relevant stakeholders in studying the existing research work, as well as in setting the directions for future research work related to same subject area and use of such data in any field that can be contribute in a resourceful manner.