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Impact of speculation and economic uncertainty on commodity markets
Linköping University, Department of Management and Engineering. Linköping University, Faculty of Arts and Sciences.
Paris, France.
Paris, France.
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
2016 (English)In: International Review of Financial Analysis, ISSN 1057-5219, E-ISSN 1873-8079, Vol. 43, 115-127 p.Article in journal (Refereed) PublishedText
Abstract [en]

Abstract We examine the interactions between commodity futures returns and five driving factors (financial speculation, exchange rate, stock market dynamics, implied volatility for the US equity market, and economic policy uncertainty). Nonlinear causality tests are implemented after controlling for cointegration and conditional heteroscedasticity in the data over the period May 1990 – April 2014. Our results show strong evidence of unidirectional linear causality from commodity returns to excess speculation for the majority of the considered commodities, in particular for agriculture commodities. This evidence casts doubt on the claim that speculation is driving food prices. We also find unidirectional linear causality from energy futures markets to exchange rates and strong evidence of nonlinear causal dependence between commodity futures returns, on the one hand, and stock market returns and implied volatility, on the other hand. Overall, the new evidence found in this paper can be utilized for policy and investment decision-making.

Place, publisher, year, edition, pages
2016. Vol. 43, 115-127 p.
Keyword [en]
Commodity markets, Economic uncertainty, Nonlinear causality, Step-wise filtering
National Category
Economics Economics and Business
URN: urn:nbn:se:liu:diva-127338DOI: 10.1016/j.irfa.2015.11.005OAI: diva2:921770
Available from: 2016-04-21 Created: 2016-04-21 Last updated: 2016-04-21Bibliographically approved
In thesis
1. Nonlinear and Nonparametric Dynamical Methods in Economics and Finance
Open this publication in new window or tab >>Nonlinear and Nonparametric Dynamical Methods in Economics and Finance
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The objectives of the thesis - which comprises six parts – can be summarized in i) implementing linear and nonlinear/nonparametric approaches toward detecting, measuring and analyzing the nature and directionality of causal relationships in financial markets, ii) elaborating on modern topics in financial investment analysis, iii) probing into the role of commodity futures in constructing optimal portfolios as well as iv) investigating growth dynamics via aggregated and disaggregated indices.

The first paper named “Analyzing causal interactions between sectoral equity returns and commodity futures returns in the aftermath of the global financial crisis: The case of the US and EU equity returns”, aims to explore and compare the dependence and co-movement structure between commodity and various asset classes’ returns including the USA and EU stock markets via the use of linear and non-linear causality testing in a comparative context with the additional adjustment for cointegration and conditional heteroscedasticity. The findings provide important implications for optimal asset allocation and portfolio diversification with respect to various market conditions, namely both in “good” and “bad” (crisis) times.

The second paper is entitled “On the time scale behaviour of Equity-Commodity links: Implications for Portfolio Management”, and has been published in the Journal of International Financial Markets, Institutions and Money (2016). The study is co-authored with Professors S. Bekiros, D.K. Nguyen, and B. Sjö. It develops a holistic framework for the investigation of the multi-horizon and intra-frequency causal directionalities of various asset classes, by means of multi-resolution analysis. The results verify the assumption that financial markets exhibit time-varying co-movement patterns, which are fundamentally important in a) generating profitable trading strategies according to different investor horizon expectations and b) decoding the financialization mechanism across various asset classes.

The third paper entitled “Business Cycle (de) Synchronization in the aftermath of the Global Financial Crisis: Implications for the Euro Area”, was published at Studies in Nonlinear Dynamics and Econometrics (2015) and is co-authored with S. Bekiros, D.K Nguyen and B. Sjö. In this work, the scale-dependent time-varying (de)synchronization effects between the Eurozone and the broad Euro area business cycles are revealed, before and after the global financial crisis. The results, which point towards an increased observed comovement during the crisis period for the Euro area, could be catalytic for the introduction of a more efficient monetary policy by EU institutions and in particular by the European Central Bank.

In the fourth paper, “Do financial stress and policy uncertainty have an impact on the energy and metals markets? A quantile regression approach”, which was published in the International Review of Economics and Finance (2016) and co-authored with J.C. Reboredo, the financial and policy uncertainty is investigated in relation to the price dynamics of energy and metal commodity futures’ markets. This work lead to the analysis of the asymmetric interrelationships with respect to changes in the perceptions of various risk measures, covering various periods, i.e., “normal” vs. “turbulent” such as upward or downward market episodes.

The fifth paper, co-authored with P. Andreasson, S. Bekiros and D.K. Nguyen, is entitled “The impact of speculation and economic uncertainty on commodity markets”, and is published in the International Review of Financial Analysis (2016). This paper attempts a novel methodological approach to measuring speculation in commodity markets, in particular whether market speculation drives agricultural commodity prices or viceversa. The assessment of the empirical analysis demonstrates that agricultural prices are not affected by speculation.

Finally, the sixth paper “Energy and Output Dynamics in Bangladesh”, co-authored with B.P. Paul, was published in Energy Economics (2011) and explores the relationship between energy utilization and economic growth in Bangladesh. Specifically, it deals with the important issue of whether energy consumption can be reduced without affecting economic growth while at the same time implicitly may lead to poverty reduction. The findings substantiate the fact that a) energy usage has become more efficient in recent times, as well as indicate that b) fluctuations in energy consumption did not have a significant impact on economic output.

Place, publisher, year, edition, pages
Linköping: Linköping University Electronic Press, 2016. 15 p.
Linköping Studies in Arts and Science, ISSN 0282-9800 ; 680
Commodity markets, Nonlinear causality testing, Dependence structure, Business cycles, Timescale analysis, Growth dynamics, Portfolio management
National Category
Economics Economics and Business
urn:nbn:se:liu:diva-127340 (URN)10.3384/diss.diva-127340 (DOI)978-91-7685-768-7 (Print) (ISBN)
Public defence
2016-05-23, ACAS, Entrance 17, Building A, Campus Valla, Linköpiong, 10:15 (English)
Available from: 2016-04-21 Created: 2016-04-21 Last updated: 2016-06-14Bibliographically approved

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Uddin, Gazi Salah
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