Financialisation of natural resources & instability caused by risk transfer in commodity markets

Abstract

Understanding the connectedness of financial markets and hence possible sources of systematic risk is central to the debate on the process of financialisation and its consequences for financial stability. In this study, we examine the connectedness between commodity spot and futures prices by applying a novel frequency connectedness framework on data from January 1979 to December 2019 to measure the connectedness among financial variables. Focusing on the seven most widely traded commodities, including gold, silver, crude oil (WTI and BRENT), corn, soya and iron, we find that (i) volatility of the commodity derivatives (futures) contribute to the spot volatility and hence influence spot prices of the underlying commodities in international markets (ii) volatility spillover effects are stronger in the first four days of the shock, suggesting that shocks to the underlying asset volatility caused by its own fundamental are more prevalent and persistent in the long-term (iii) commodities futures volatility transmission is higher than spot price volatility transmission to the futures prices. Our findings shed new light on the relationship between the actual spot price of commodities and their derivatives and have crucial socio-economic implications in terms of financialisation of important commodities.

Asymmetric correlation and hedging effectiveness of gold & cryptocurrencies: From pre-industrial to the 4th industrial revolution✰

“…(2017) who suggested that gold is neither a hedge nor a safe haven asset for stocks in BRIC markets. This result is not surprising because the accelerated financialization of commodity markets ( Huynh et al., 2020b ), including the gold market, has significantly increased investments in gold, making the gold asset behave more and more like stocks. Our findings are contrary to Wen and Cheng (2018) as they argued that safe haven properties of gold for emerging stock markets exist.…”

Asymmetry of Risk Evolution in Crude Oil Market: From the Perspective of Dual Attributes of Oil

“…In addition, under different returns trends of the international crude oil market, there are differences in investors' expectations and attention in the international crude oil market. Based on the above analysis, this paper defines the risks of rising and falling returns in the international crude oil market in Equations ( 4) and (5).…”

“…As the most financialized energy product, oil has not only commodity attributes, but also financial attributes. Global capital flows and investor speculation increase the uncertainty of risk evolution in the international crude oil market [1][2][3][4][5][6]. The evolution of crude oil risk has a significant correlation with crude oil price and returns.…”

Assessing The Economic Viability And Fueling Capacity of Renewable Hydrogen: A Way Forward For Green Economic Performance And Policy Measures

“…Pakistan is a South Asian country with wind speed is nearly constant in certain parts of Pakistan, and the proportion of windy region is determined using the total land area. The average installed energy per square kilometer of wind power field is projected by traditional calculations to be 5 MW in order to assess the output of wind power (Duc Huynh et al 2020).…”