Quantile Dependence between Crude Oil and China’s Biofuel Feedstock Commodity Market

Liya Hau, Huiming Zhu, Muhammad Shahbaz and Ke Huang ()
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Liya Hau: Business School, Ningbo University, Ningbo 315211, China
Huiming Zhu: College of Business Administration, Hunan University, Changsha 410082, China
Ke Huang: School of Information and Electrical Engineering, Hangzhou City University, Hangzhou 310015, China

Sustainability, 2023, vol. 15, issue 11, 1-17

Abstract: This paper investigates the heterogeneous dependence between global crude oil futures and China’s biofuel feedstock commodities under different market conditions. Quantile-on-quantile regression and the causality-in-quantiles test are employed to capture comprehensive and informative relationships. The empirical results are as follows: First, there is a positive relationship between the returns on China’s biofuel feedstock commodities and crude oil. The effects are heterogeneous, conditional on the market regimes, where the impacts of the bearish/bullish crude oil market on biofuel feedstock commodity returns are significant when the commodity market in China is in a bearish/bullish state. Second, crude oil returns have reliable predictive power for the returns on China’s biofuel feedstock commodities under the average market condition and move in connection with the volatility of China’s biofuel-related commodity market in normal and bullish market conditions. Third, the risk reduction effectiveness of soybean and corn is significant, while for wheat, this reduction in portfolio risk is less apparent and enhanced, and the risk reduction effectiveness increases significantly during financial and oil crises. Overall, our findings will be helpful in understanding the heterogeneous interplay between global oil and China’s biofuel-related commodities and in evaluating portfolio diversification opportunities under different market conditions.

Keywords: quantile dependence; biofuel feedstock; crude oil; quantile-on-quantile regression; causality-in-quantiles test (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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