How does oil price volatility affect non-energy commodity markets?

► A bivariate EGARCH model with time-varying correlation construction was employed. ► The volatility spillover effects between crude oil market and various non-energy markets are analyzed. ► The correlation between the crude oil market and non-energy markets strengthens after the financial crisis. ►...

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Bibliographic Details
Published in:Applied energy 2012-01, Vol.89 (1), p.273-280
Main Authors: Ji, Qiang, Fan, Ying
Format: Article
Language:English
Subjects:
Applied sciences
biofuels
Commodities
Consistency
Construction costs
Correlation
Crude oil
Crude oil market
Dynamic correlation
economic recession
Energy
Exact sciences and technology
Inflation
market prices
Markets
Non-energy commodity market
oils
petroleum
Volatility
Volatility spillover
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Summary:► A bivariate EGARCH model with time-varying correlation construction was employed. ► The volatility spillover effects between crude oil market and various non-energy markets are analyzed. ► The correlation between the crude oil market and non-energy markets strengthens after the financial crisis. ► Crude oil market is proved to occupy the core position in the whole commodity markets. The influence of price volatility in the crude oil market is expanding to non-energy commodity markets. With the substitution of fossil fuels by biofuel and hedge strategies against inflation induced by high oil prices, the link between crude oil market and agriculture markets and metal markets has increased. This study measures the influence of the crude oil market on non-energy commodity markets before and after the 2008 financial crisis. By introducing the US dollar index as exogenous shocks, we investigate price and volatility spillover between commodity markets by constructing a bivariate EGARCH model with time-varying correlation construction. The results reveal that the crude oil market has significant volatility spillover effects on non-energy commodity markets, which demonstrates its core position among commodity markets. The overall level of correlation strengthened after the crisis, which indicates that the consistency of market price trends was enhanced affected by economic recession. In addition, the influence of the US dollar index on commodity markets has weakened since the crisis.
ISSN:0306-2619
1872-9118
DOI:10.1016/j.apenergy.2011.07.038