Commodities and Policy Uncertainty Channel(s)

K. Smimou, D. Bosch and G. Filbeck

International Review of Economics & Finance, 2024, vol. 92, issue C, 351-379

Abstract: Based on a proposed linked theoretical model, this study dissects the contributory role of policy uncertainty on commodity futures contracts and pertinent commodity equity sectors. Within an economically connected framework, we elucidate the dynamic relationship between these groups of assets while allowing for policy uncertainty shock. Findings show that commodity hedgers altered trading positions in metals in response to a high policy uncertainty shock before 2004. In contrast, speculators account for that shock after that date purely via crude oil. Both monetary policy and regulatory uncertainties influence the pricing dynamics of metals and energy commodities. Given the inextricable commodity–stock relationship, we offer evidence to support the triple effect of economic policy uncertainty on the intensiveness of financialization of commodities and commodity stock returns through (1) change of institutional holdings, (2) managers’ alteration of CAPEX investment of commodity firms, and (3) the interactive causality channel between commodity futures and commodity stocks.

Keywords: Hedgers; Speculators; Commodity stock markets; Commodity futures; Policy uncertainty; Financialization of commodities (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 G23 G31 M54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:92:y:2024:i:c:p:351-379

DOI: 10.1016/j.iref.2024.01.065

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