Commodity Pricing Volatility Shifts in a Highly Turbulent Time Period. A Time-varying Transition Probability Markov Switching Analysis

Giulio Cifarelli

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: The pricing of six highly liquid futures commodity contracts is investigated using a Markov switching procedure. The data set spans an exceptionally turbulent time period, characterized by a complex interplay of economic/financial and political shocks. Markov switching analysis exploits time series nonlinearity in order to identify the nature and the timing of the implicit changes of regime. Building on a HAM framework, we use the time varying parameterization of the transition probability estimates in order to link these shifts to exogenous variables. We provide in this way additional information on the co-movement of the time series and on their eventual regime shifts. The WTI oil futures price and DJIA stock index turn out to be the main common drivers of the changes in regime of most futures commodity prices.

Keywords: HAM Commodity pricing; Markov Switching; Time-Varying Transition Probabilities (search for similar items in EconPapers)
JEL-codes: G11 G12 G18 Q40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023
New Economics Papers: this item is included in nep-rmg
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