Volatility spillovers between energy and agricultural markets in theory and practice
Energy and agricultural commodities and markets have been examined extensively, albeit separately, for a number of years. In the energy literature, the returns, volatility and volatility spillovers (namely, the delayed effect of a returns shock in one asset on the subsequent volatility or covolatility in another asset), among alternative energy commodities, such as oil, gasoline and ethanol across different markets, have been analysed using a variety of univariate and multivariate models, estimation techniques, data sets, and time frequencies. A similar comment applies to the separate theoretical and empirical analysis of a wide range of agricultural commodities and markets. Given the recent interest and emphasis in bio-fuels and green energy, especially bio-ethanol, which is derived from a range of agricultural products, it is not surprising that there is a topical and developing literature on the spillovers between energy and agricultural markets. Modelling and testing spillovers between the energy and agricultural markets has typically been based on estimating multivariate conditional volatility models, specifically the BEKK and DCC models. The purpose of the paper is to evaluate the theory and practice in testing for volatility spillovers between energy and agricultural markets using the multivariate BEKK and DCC models, and to make recommendations as to how such spillovers might be tested using valid statistical techniques. Three new definitions of volatility and covolatility spillovers are given, and the different models used in empirical applications are evaluated in terms of the new definitions and statistical criteria.
|Keywords||Definitions of spillovers, Energy and agricultural markets, Univariate and multivariate conditional volatility models, Volatility and covolatility spillovers|
|Conference||21st International Congress on Modelling and Simulation: Partnering with Industry and the Community for Innovation and Impact through Modelling, MODSIM 2015 - Held jointly with the 23rd National Conference of the Australian Society for Operations Research and the DSTO led Defence Operations Research Symposium, DORS 2015|
Chang, C-L, Li, Y. (Y.), & McAleer, M.J. (2018). Volatility spillovers between energy and agricultural markets in theory and practice. In Proceedings - 21st International Congress on Modelling and Simulation, MODSIM 2015 (pp. 987–993). Retrieved from http://hdl.handle.net/1765/125322