The macroeconomic determinants of commodity futures volatility: Evidence from Chinese and Indian markets
Rakesh Gupta (),
Bin Li and
Economic Modelling, 2018, vol. 70, issue C, 543-560
We examine the macroeconomic determinants of the volatility of commodity futures (including agricultural commodity futures, metal futures and oil futures) in two emerging commodity markets – China and India. The macroeconomic variables used include both domestic and international macroeconomic variables that gauge economic environment, monetary policy and financial market information. We use a recently proposed GARCH-MIDAS model which jointly incorporates the daily price volatility and low-frequency macroeconomic variables. The model decomposes the volatility series into short- and long-run components, thereby enabling us to test whether the macroeconomic variables can determine the long-run variance. We find that there exists a long-run volatility component in the commodity futures, and most of the tested low-frequency macroeconomic variables are positively related to the long-run variance of commodity futures. Our results suggest that both domestic and international macroeconomic information plays an important role in determining the price volatility of the emerging commodity futures.
Keywords: Macroeconomic determinants; Volatility; Commodity futures; Emerging markets; GARCH-MIDAS model (search for similar items in EconPapers)
JEL-codes: E37 E44 E47 G17 Q02 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:70:y:2018:i:c:p:543-560
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