Risk spillovers and diversification benefits between crude oil and agricultural commodity futures markets

Mensi, Walid; Rehman, Mobeen Ur; Gök, Remzi; Gemici, Eray; Vo, Xuan Vinh

Abstract

This study examines the dependence structure and risk spillovers between crude oil and eight major agricultural futures (wheat, corn, soybean coffee, cotton, lumber, cocoa, and live cattle) markets. It also analyzes the potential conditional diversification benefits using a variety of copula functions and Conditional Value at Risk (CoVaR) measure. The results show significant crisis-sensitive and temporal dependence between oil and agricultural markets. Moreover, crude oil shows a symmetric tail dependence with both wheat, corn, soybeans, and cotton futures, whereas oil exhibits an average dependence with coffee. A strong dependence is observed between oil and cocoa (lumber) during bearish (bullish) market conditions. Oil and Live cattle have a symmetric dependence during bearish and bullish market conditions. On the other hand, we find asymmetric and bidirectional risk spillovers from oil to agricultural markets. Furthermore, the wheat futures contract appears to be the most dominating and vulnerable asset to oil price shocks, followed by lumber and corn futures, respectively, while the live cattle contracts are the least. Finally, an equally weighted portfolio offers the highest diversification benefits at a 5 % expected shortfall.

Citation

Mensi, W., Rehman, M. U., Gök, R., Gemici, E., & Vo, X. V. (2024). Risk spillovers and diversification benefits between crude oil and agricultural commodity futures markets. Research in International Business and Finance, 73(Part A), 1-22. https://doi.org/10.1016/j.ribaf.2024.102579

• Journal Article Type: Article
• Acceptance Date: Sep 6, 2024
• Online Publication Date: Sep 24, 2024
• Publication Date: Sep 24, 2024
• Deposit Date: Oct 11, 2024
• Publicly Available Date: Oct 21, 2024
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Electronic ISSN: 1878-3384
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 73
• Issue: Part A
• Article Number: 102579
• Pages: 1-22
• DOI: https://doi.org/10.1016/j.ribaf.2024.102579
• Keywords: commodity prices, spillovers, diversification benefits, copula
• Public URL: https://keele-repository.worktribe.com/output/948528