Extreme risk spillovers between crude palm oil prices and exchange rates |
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| Institution: | 1. Faculty of Business and Finance, Universiti Tunku Abdul Rahman, Perak, Malaysia;2. Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia;1. Institute of Business and Management, National Yang Ming Chiao Tung University, 118 Chung-Hsiao West Road, Section 1, Taipei, Taiwan;2. Graduate Institute of Finance, National Taiwan University of Science and Technology, 43, Keelung Rd., Section 4, Taipei, Taiwan;3. Center for General Education, Chung Yuan Christian University, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan;4. Science and Technology Policy Research and Information Center, National Applied Research Laboratories, 106 Heping East Road, Section 2, Taipei, Taiwan;5. Power Generation Division, Taiwan Power Company, 242, Roosevelt Road, Section 3, Taipei, Taiwan;1. School of Finance, Nanjing Audit University, Nanjing, Jiangsu 211815, China;2. College of Management and Economics, Tianjin University, Tianjin 300072, China;3. School of Government Audit, Nanjing Audit University, Nanjing, Jiangsu 211815, China;1. Department of Business Administration National Taipei University, 151, University Rd, San Shia District, New Taipei City 23741, Taiwan;2. College of Management, Yuan Ze University, Taiwan;1. Meiji University, Japan;2. Doshisha Women’s College of Liberal Arts, Japan;3. Waseda University, Japan |
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| Abstract: | This study is the first attempt to examine the extreme risk spillovers between Malaysian crude palm oil (CPO) and foreign exchange currencies of the three largest CPO importers: India, the European Union and China throughout the global financial crisis. Using daily data of three currencies, CPO spot and futures from 2000 to 2018, our results show: First, before the crisis, the unexpected change in foreign exchange rates is the primary driver of risk spillover to the CPO market. Second, during the crisis, the extreme movement of CPO spot returns is dominant in the Malaysian exchange rates relative to the euro. Third, after the crisis, the spillover flows from the CPO market to the foreign exchange market. Overall, our findings show the importance of CPO pricing dynamics in mitigating foreign exchange risk over the crisis period. This paper contributes to the extant literature by recognizing the effect of risk spillover on the targeted foreign exchange rate for portfolio allocation. |
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| Keywords: | Crude palm oil Foreign exchange Extreme risk spillovers Granger causality in risk Global financial crisis Malaysia |
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