Neeti Jain – Indian Institute of Foreign Trade, B-21 Qutub Institutional Area New Delhi 110016, India
Niti Nandini Chatnani – Indian Institute of Foreign Trade, B-21 Qutub Institutional Area New Delhi 110016, India
Abstract: The introduction of index futures was a landmark event for global commodity markets. It has been blamed by regulators and academicians for its role in food price surges from time to time. This paper examines the price discovery and volatility spillover relationship among agricultural index futures globally. Results from the study reveal that index futures play a dominant role in contributing to price discovery. The price leadership of the futures market, although found to be strong, is diminished in the presence of stringent regulatory trading curbs that were put in place as a response to the crisis.
Furthermore, an improved Diebold & Yilmaz method based on TVP-VAR-SV model was used to analyze dynamic connectedness between the index and standalone contracts of agriculture commodity markets. The results show that the impacts on the net spillover of various indices are different. However, the evidence fails to support the argument that volatility is induced due to spillovers among the indices.
8th International Scientific ERAZ Conference – ERAZ 2022 – Selected Papers: KNOWLEDGE BASED SUSTAINABLE DEVELOPMENT, Online-Virtual (Prague, Czech Republic), May 26, 2022
ERAZ Selected Papers published by: Association of Economists and Managers of the Balkans – Belgrade, Serbia
ERAZ conference partners: Faculty of Economics and Business, Mediterranean University, Montenegro; University of National and World Economy – Sofia, Bulgaria; Faculty of Commercial and Business Studies – Celje, Slovenia; AMBIS University, Prague – Czech Republic; Faculty of Applied Management, Economics and Finance – Belgrade, Serbia
ERAZ Conference 2022 Selected Papers: ISBN 978-86-80194-61-5, ISSN 2683-5568, DOI: https://doi.org/10.31410/ERAZ.S.P.2022
Creative Commons Non Commercial CC BY-NC: This article is distributed under the terms of the Creative Commons Attribution-Non-Commercial 4.0 License (https://creativecommons.org/licenses/by-nc/4.0/) which permits non-commercial use, reproduction and distribution of the work without further permission.
Jain, N., & Nandini Chatnani, N. (2022). Financialization – Evidence from Dynamic Connectedness among Agricultural Index Futures. In V. Bevanda (Ed.), ERAZ Conference – Knowlegde Based Sustainable Development: Vol 8. Selected Papers (pp. 35-41). Association of Economists and Managers of the Balkans. https://doi.org/10.31410/ERAZ.S.P.2022.35
Balcilar, M., Cakan, E., & Gupta, R. (2017). Does US news impact Asian emerging markets? Evidence from nonparametric causality-in-quantiles test. North American Journal of Economics and Finance, 41, 32–43. DOI: 10.1016/j.najef.2017.03.009
Balcilar, M., Gabauer, D., & Umar, Z. (2021). Crude Oil futures contracts and commodity markets: New evidence from a TVP-VAR extended joint connectedness approach. Resources Policy, 73. DOI: 10.1016/j.resourpol.2021.102219
Basak, S., & Pavlova, A. (2016). A Model of Financialization of Commodities. Journal of Finance, 71(4), 1511–1556. DOI: 10.1111/jofi.12408
Bodie, Z., & V.I., R. (1980). Risk and Return in Commodity Futures. 36(3), 27–31.
Boyd, N. E., Büyükşahin, B., Haigh, M. S., & Harris, J. H. (2016). The Prevalence, Sources, and Effects of Herding. Journal of Futures Markets, 36(7), 671–694. DOI: 10.1002/fut.21756
Büyüksahin, B., Haigh, M. S., & Robe, M. A. (2010). Commodities and equities: ever a “market of one”? The Journal of Alternative Investments, Winter, 76–95. www.iijournals.com
Cao, G., Xu, L., & Cao, J. (2012). Multifractal detrended cross-correlations between the Chinese exchange market and stock market. Physica A: Statistical Mechanics and Its Applications, 391(20), 4855–4866. DOI: 10.1016/j.physa.2012.05.035
Cargill. (2021). Corn and Soybeans: The Start of a New Supercycle in Agriculture?
Carter, D. A., Rogers, D. A., Simkins, B. J., & Treanor, S. D. (2017). A review of the literature on commodity risk management. In Journal of Commodity Markets. DOI: 10.1016/j. jcomm.2017.08.002
Clapp, J., & Helleiner, E. (2012). Troubled futures? The global food crisis and the politics of agricultural derivatives regulation. Review of International Political Economy, 19(2). DOI: 10.1080/09692290.2010.514528
Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1). DOI: 10.1016/j. ijforecast.2011.02.006
Diebold, F. X., & Yilmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics, 182(1), 119–134. DOI: 10.1016/j.jeconom.2014.04.012
Diebold, F. X., Yilmaz, K., Binder, M., Dominguez, K., Frankel, J., Giavazzi, F., Leeper, E., Reichlin, L., & West, K. (2009). Measuring Financial Asset Return and Volatility Spillover, with Application to Global Equity Markets. The Economic Journal, 119, 158–171. https://academic.oup.com/ej/article/119/534/158/5089555
Edwards, F. R., & Liew, J. (2013). Managed Commodity Funds. 9(November 2012), 38–47.
Irwin, S. H., & Sanders, D. R. (2012). Financialization and Structural Change in Commodity Futures Markets. Journal of Agricultural and Applied Economics. DOI: 10.1017/s1074070800000481
Jensen, G. R., Johnson, R. R., & Mercer, J. M. (2000). Efficient Use of Commodity Futures in Diversified Portfolios. 20(5), 489–506.
le Pen, Y., & Sévi, B. (2018). Futures trading and the excess Co-movement of commodity prices. Review of Finance, 22(1), 381–418. DOI: 10.1093/rof/rfx039
Naeem, M. A., Farid, S., Nor, S. M., & Shahzad, S. J. H. (2021). Spillover and drivers of uncertainty among oil and commodity markets. Mathematics, 9(4), 1–23. DOI: 10.3390/math9040441
Singleton, K. J. (2014). Investor flows and the 2008 boom/bust in oil prices. Management Science, 60(2). DOI: 10.1287/mnsc.2013.1756
Xu, J., & Gong, X. (2022). Geopolitical risk and dynamic connectedness between commodity markets.