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Elie Bouri, Imad Kachacha, Donald Lien and David Roubaud
''Short- and long-run causality across the implied volatility of crude oil and agricultural commodities''
( 2017, Vol. 37 No.2 )
Unlike prior studies which often use realized variance or return series within a GRACH framework to examine time-domain linkages, this study employs CBOE implied volatility data from July 27, 2012 to September 30, 2016 within the frequency-domain causality framework in order to uncover short-, medium-, and long-run causal relations across crude oil, wheat and corn markets. Overall, the results show that the volatility causal relation differs between high and low frequencies. Specifically, we provide evidence in further support of the argument that the crude oil market dominates the corn market. The results also indicate that structural breaks characterize the causal relation between the implied volatilities of corn and wheat, which is found to differ between the short- and long-run. Implications for the analysis of hedging and risk management are discussed.
Keywords: Implied volatility, crude oil, corn, wheat, frequency-domain causality
JEL: G1 - (G11, G13, G13) Portfolios, Investments, Asset and Futures Pricing, Trading Volume & Bond Interest Rates
Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics: General
Manuscript Received : Feb 04 2017 Manuscript Accepted : May 14 2017

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