Predicting volatility from commodity spillovers

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

PhD Seminar (Econ)

Date & time

Friday 01 December 2023


Weston Theatre and Online via Zoom


Rubayat Chowdhury

This study estimates commodity return spillovers from daily spot prices of 24 market-traded commodities over the period 18 August 2006 to 30 December 2022 employing the Diebold and Yilmaz (2014) spillover index. Spillovers rose persistently during periods of high economic volatility such as the global financial crisis and the COVID-19 pandemic. The study then tests the forecast ability of commodity spillovers for implied volatility in the global equity and currency markets with the daily indices reported by the Chicago Board Options Exchange (CBOE). The authors find that commodity spillovers predict uncertainty in the U.S. equity market (VIX) one week in advance and the emerging markets (VXEEM) three weeks in advance. Spillovers also predict volatility in the euro-US dollar exchange rate (EVZ). The predictive power of commodity spillovers is robust to the choice of evaluation period.

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