EconPapers    
Economics at your fingertips  
 

Exploring the transmission mechanism of speculative and inventory arbitrage activity to commodity price volatility. Novel evidence for the US economy

Wei Yao and Constantinos Alexiou

International Review of Financial Analysis, 2022, vol. 80, issue C

Abstract: In the realm of monetary policy, we explore the transmission mechanism that relates speculative activity, inventory arbitrage activity, and commodity price volatility. In this direction, an ARMA-GARCH model is adopted to test this transmission effect on seven commodities using weekly U.S. data for the period 2008:12 to 2018:6. The results suggest that inventory arbitrage activities transmit monetary policy's effect onto commodities by strengthening the effect of the real interest rate on commodities' prices; in the case of palladium and crude oil's price conditional variances however the opposite effect is established. Speculative activities transmit monetary policy's effect mainly on commodities by increasing the positive effect of the real interest rate on metals and crude oil's prices, and on palladium and crude oil's price conditional variances. Our results show that inventory arbitrage activities are negatively related with commodities' prices, whilst speculative activities are positively related with commodities' prices. The two activities appear to exert mixed effects on commodities' price conditional volatilities. Additional evidence indicates that the relationship between the real interest rate and commodities' prices is positive and significant when unconventional monetary policy is considered, whilst we find that the real interest rate does not have any significant impact on most commodities' price conditional volatilities.

Keywords: Monetary policy; Commodity price volatility; Speculative activity; Inventory arbitrage activity; Transmission mechanism (search for similar items in EconPapers)
JEL-codes: C50 E31 E4 F4 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521922000072
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:80:y:2022:i:c:s1057521922000072

DOI: 10.1016/j.irfa.2022.102027

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-02-18
Handle: RePEc:eee:finana:v:80:y:2022:i:c:s1057521922000072