VOLATILITY IN AGRICULTURAL COMMODITY AND OIL MARKETS DURING TIMES OF CRISES
VOLATILITY IN AGRICULTURAL COMMODITY AND OIL MARKETS DURING TIMES OF CRISES

Summary/Abstract: The analysis of volatility patterns in agricultural commodity markets is considered during the Asian Financial Crisis and the Global Financial Crisis. The methodology framework is supported by the implementation of well-known econometric modeling in the field of market uncertainty. The Bai Perron test was considered to verify the existence of breakpoints on market trends that were used to adjust the variance equation in the selected T-GARCH model. The main research outcomes indicate that the instability in commodity markets was enhanced during the 2008 Global Financial Crisis (GFC) and that this had a stronger and more persistent impact than during the Asian Financial Crisis. This difference in behavior during the two crises periods highlights the much broader magnitude and influence of the GFC, when compared to a rather geographically contained Asian episode. The research framework was enriched by the inclusion of oil markets behavior to examine spillover effects running from oil market fluctuations towards agricultural commodities. The results did not offer significant evidence on the existence of volatility spillover effects running from oil markets towards commodities, with only some effects detected for corn, wheat and coffee. The main findings suggest that commodity markets uncertainty is heightened due to speculative practices, and to a minor extent, to recent trends of their use as raw materials for generating bio energy products. This contributes to uncertainty and instability on these markets, and this will have a major impact over the coming years, as the world economy tries to minimize its dependence on the use of fossil fuels and as emerging markets become more integrated in the world economy.

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