Time-varying dependence structure between oil and agricultural commodity markets: A dependence-switching CoVaR copula approach

Kumar, Satish and Tiwari, Aviral and Raheem, Ibrahim and Hille, Erik (2021): Time-varying dependence structure between oil and agricultural commodity markets: A dependence-switching CoVaR copula approach. Forthcoming in: Resources Policy

Abstract

We examine the energy-food nexus using the dependence-switching copula model. Specifically, we look at the dependence for four distinct market states, such as, increasing oil–increasing commodity, declining oil–declining commodity, increasing oil–declining commodity, as well as declining oil–increasing commodity markets. Our results support the argument that the crash of oil markets and agricultural commodities happen at the same time, especially during crisis period. However, the same is not true during times of normal economic conditions, implying that investors cannot make excess profits in both agricultural and oil markets at once. Furthermore, our analysis suggests that the return chasing effect dominates for all commodities on maximum occasions. The CoVaR and ∆CoVaR results indicate important risk spillover from oil to agricultural markets, especially around the financial crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Agricultural commodities; Oil; CoVaR; Dependence-switching copula; Tail dependence.
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy

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