Geopolitical risk on energy, agriculture, livestock, precious and industrial metals: New insights from a Markov Switching model

Ilyes Abid, Abderrazak Dhaoui, Olfa Kaabia and Salma Tarchella

Resources Policy, 2023, vol. 85, issue PA

Abstract: This paper delineates a novel approach to analyze the dynamic effects of a Geopolitical Risk (GPR) shock on five types of commodities (energy, precious metals, agriculture, industrial metals, and livestock products). Covering a period of 10 years, from 2013 to 2023, we use a Markov-Switching model with two regimes (low and high volatility). The findings indicate that a Markov-Switching model with a t-distribution for the errors is the most suitable to analyze the impact of GPR shocks on commodity markets. All commodities react to a GPR shock but differently. The energy market is the most reactive market and livestock is the less sensitive one. Our results suggest that investors may want to consider the impact of geopolitical risk on different types of commodities before making investment decisions. Market participants should pay attention to changes in the Geopolitical Risk Index during high volatility regimes to better understand the behavior of commodity markets.

Keywords: Commodity prices; Geopolitical risk; Investors’ sentiment (search for similar items in EconPapers)
JEL-codes: C14 C46 C58 Q02 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:85:y:2023:i:pa:s0301420723006360

DOI: 10.1016/j.resourpol.2023.103925

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