Commodity tail-risk and exchange rates

Massimiliano Bondatti and Giovanni Rillo

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: This paper studies the downside tail-risk relationship between currencies and commodities. In order to do so, we use the novel MCoVaR with Elastic-Net of Bonaccolto et al. (2021) to simultaneously account for the potential ties among a large set of commodities. We show that exchange rates are significantly exposed to downside tail-risk with respect to several commodities, including, but not limited to, oil and gold. Additionally, we find that different exchange rates are vulnerable to tail-risk in different commodities. Lastly, the results with respect to gold indicate that the Japanese yen and the Swiss franc can be considered safe-haven assets.

Keywords: Exchange rates; Commodity prices; Tail-risk; CoVaR; Elastic-Net (search for similar items in EconPapers)
JEL-codes: C58 F3 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612322001994

DOI: 10.1016/j.frl.2022.102937

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