Trade policy uncertainty, shipping risk, and commodity markets

Mengya Shang, Lin Zhang, Hongcheng Duan, Lizhi Wang and Nanyun Xiao

Finance Research Letters, 2025, vol. 73, issue C

Abstract: This study examines the impact of trade policy uncertainty (TPU) on commodity market volatility through shipping risk. We decompose realized volatility into common and idiosyncratic components. Using the time-varying parameter vector autoregression Diebold–Yilmaz model, we explore the spillover effects of TPU and shipping risk and the connectedness of commodity market returns. Findings reveal that the connectedness is highest for common volatility, followed by realized volatility, and lowest for idiosyncratic volatility. TPU has notable net spillover effects on all types of volatility. However, shipping risk has notable net spillover effects only on idiosyncratic volatility. We also demonstrate that TPU directly impacts realized volatility and common volatility in the commodity market. By contrast, for idiosyncratic volatility, TPU indirectly affects the commodity market through shipping risk.

Keywords: Trade policy uncertainty; Shipping risk; Commodity market; Idiosyncratic volatility (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016337

DOI: 10.1016/j.frl.2024.106604

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