Global financial crisis and rising connectedness in the international commodity markets |
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Affiliation: | 1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, 555 Liutai Avenue, Chengdu 611130, China;2. School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong;1. Department of Business Administration, Pusan National University, Busan 609-735, Republic of Korea;2. Centre for Applied Financial Studies (CAFS), School of Commerce, UniSA Business School, University of South Australia, Adelaide, SA, Australia;3. Department of Economics, Pusan National University, Jangjeon2-Dong, Geumjeong-Gu, Busan, 609-735, Republic of Korea |
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Abstract: | This paper documents a dramatic change in the nature of connectedness in global commodity prices following the 2008 global financial crisis. We show that co-dependence in price-changes among seven major commodity classes goes from a pre-crisis average of 14.82% to a strikingly larger average of 47.87% in the period following the crisis, and which has endured until now. Dynamic swings in price co-movements of such a scale present a clear concern for financial investors and are of immediate interest to a wider policy-maker audience. Of particular interest is the empirical behavior of the food commodity price index, whose contribution to the system dynamics rises from less than 20% in the period up to 2008, to more than 80% after. To dispel any concern that these finding may be method-specific, we demonstrate their invariance to modeling procedure by providing analogous-results using a pairwise Granger causality analysis, as well as different sub-sampling choices. |
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