How is Volatility in Commodity Markets Linked to Oil Price Shocks?

36 Pages Posted: 19 Jan 2016

See all articles by Maryam Ahmadi

Maryam Ahmadi

Fondazione Eni Enrico Mattei

Niaz Bashiri Behmiri

University of the Interior of Beira - Department of Management and Economics; University of Tehran - Faculty of Economics

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS); Fondazione Eni Enrico Mattei (FEEM), Milan, Italy

Date Written: September 11, 2015

Abstract

This study investigates the effects of oil price shocks on volatility of selected agricultural and metal commodities. To achieve this goal, we decompose an oil price shock to its underlying components, including macroeconomics and oil specific shocks. The applied methodology is the structural vector autoregressive (SVAR) model and the time span is from April 1983 to December 2013. The investigation is divided into two subsamples, before and after 2006 for agricultures taking into account the 2006-2008 food crisis, and before and after 2008 for metals considering the recent global financial crisis. The validity of time divisions is confirmed by historical decomposition accomplishment. We find that, based on impulse response functions, the response of volatility of each commodity to an oil price shock differs significantly depending on the underlying cause of the shock for the both pre and post-crisis periods. moreover, according to variance decomposition the explanatory power of oil shocks becomes stronger after the crisis. The different responses of commodities are described in detail by investigating market characteristics in each period.

Keywords: Metals, Commodities, Volatility, Oil Price

JEL Classification: Q02, Q14, Q41, C22

Suggested Citation

Ahmadi, Maryam and Bashiri Behmiri, Niaz and Manera, Matteo, How is Volatility in Commodity Markets Linked to Oil Price Shocks? (September 11, 2015). FEEM Working Paper No. 101.2015, Available at SSRN: https://ssrn.com/abstract=2718074 or http://dx.doi.org/10.2139/ssrn.2718074

Maryam Ahmadi

Fondazione Eni Enrico Mattei ( email )

Corso Magenta, 63
Milan, MI
Italy

Niaz Bashiri Behmiri (Contact Author)

University of the Interior of Beira - Department of Management and Economics ( email )

Portugal

University of Tehran - Faculty of Economics ( email )

Tehran
Iran

Matteo Manera

University of Milan-Bicocca, Italy - Department of Economics, Management and Statistics (DEMS) ( email )

Via Bicocca degli Arcimboldi, 8
Milan, 20126
Italy
+39 02 6448 5819 (Phone)
+39 02 6448 5878 (Fax)

HOME PAGE: http://www.matteomanera.it

Fondazione Eni Enrico Mattei (FEEM), Milan, Italy ( email )

Corso Magenta, 63
Milan, 20123
Italy
+39 02 520 36944 (Phone)

HOME PAGE: http://www.feem.it

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