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Can agricultural and precious metal commodities diversify and hedge extreme downside and upside oil market risk? An extreme quantile approach
Rennes Sch Business, France.
Montpellier Business Sch, France.
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
Pusan Natl Univ, South Korea; Univ South Australia, Australia.
2019 (English)In: Resources policy, ISSN 0301-4207, E-ISSN 1873-7641, Vol. 62, p. 588-601Article in journal (Refereed) Published
Abstract [en]

The cost-effectiveness measures for production, processing, and transportation adopted by wheat, rice, and corn farmers, as well as the price fluctuations of gold and silver, doubtlessly depend on the downside and upside price trends of global economic factors such as the oil market. This dependence between oil and agricultural commodities motivates an analysis of interdependence and spillover influence in extreme oil market scenarios. By means of an extreme quantile approach, this study models the return distribution of oil in relation to some of the most traded agricultural and precious metal commodities. We find that extreme lower quantiles of oil returns have a positive effect on the lower quantiles of gold, silver, and rice returns. These effects are more significant using daily-frequency data, while for weekly and monthly frequencies, the effect is less significant. The decrease in oil returns during a bearish oil market will cause a decrease in precious metal and rice returns; therefore, these cannot be used to hedge the downside risk of oil investments, especially in the short term. These commodities might only serve as a diversification strategy for oil investments. The lower quantiles of oil returns have either no effect, or a negative effect, on the lower quantiles of wheat and corn, making them suitable hedges for extreme downturns in oil prices.

Place, publisher, year, edition, pages
ELSEVIER SCI LTD , 2019. Vol. 62, p. 588-601
Keywords [en]
Energy market oil prices; Agricultural commodities; Precious metals; Extreme quantile dependence; Predictability
National Category
Social Sciences Interdisciplinary
Identifiers
URN: urn:nbn:se:liu:diva-159136DOI: 10.1016/j.resourpol.2018.11.007ISI: 000474330600052OAI: oai:DiVA.org:liu-159136DiVA, id: diva2:1339667
Note

Funding Agencies|Ministry of Education of the Republic of Korea; National Research Foundation of Korea [NRF- 2017S1A5A8019204]; Jan Wallander and Tom Hedelius Foundation

Available from: 2019-07-30 Created: 2019-07-30 Last updated: 2019-07-30

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • oxford
  • Other style
More styles
Language
  • de-DE
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  • en-US
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  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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  • asciidoc
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