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Article
Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis
Energy Economics
  • Xiaodong Du, University of Wisconsin-Madison
  • Cindy L. Yu, Iowa State University
  • Dermot J. Hayes, Iowa State University
Document Type
Article
Publication Version
Submitted Manuscript
Publication Date
5-1-2011
DOI
10.1016/j.eneco.2010.12.015
Abstract
This paper assesses factors that potentially influence the volatility of crude oil prices and the possible linkage between this volatility and agricultural commodity markets. Stochastic volatility models are applied to weekly crude oil, corn, and wheat futures prices from November 1998 to January 2009. Model parameters are estimated using Bayesian Markov Chain Monte Carlo methods. Speculation, scalping, and petroleum inventories are found to be important in explaining the volatility of crude oil prices. Several properties of crude oil price dynamics are established, including mean-reversion, an asymmetry between returns and volatility, volatility clustering, and infrequent compound jumps. We find evidence of volatility spillover among crude oil, corn, and wheat markets after the fall of 2006. This can be largely explained by tightened interdependence between crude oil and these commodity markets induced by ethanol production.
Comments

This working paper was published as Du, Xiaodong, Cindy L. Yu, Dermot J. Hayes, "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis," Energy Economics 33 (2011): 497–503, doi:10.1016/j.eneco.2010.12.015.

Citation Information
Xiaodong Du, Cindy L. Yu and Dermot J. Hayes. "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis" Energy Economics Vol. 33 Iss. 3 (2011) p. 497 - 503
Available at: http://works.bepress.com/dermot_hayes/151/