Climate Risk and the Volatility of Agricultural Commodity Price Fluctuations: A Forecasting Experiment

Rangan Gupta and Christian Pierdzioch

No 202177, Working Papers from University of Pretoria, Department of Economics

Abstract: Using the Heterogeneous Autoregressive Realized Volatility (HAR-RV) model as a modeling platform, we study whether climate-risk factors help to predict out-of-sample the realized volatility of movements of agricultural commodity prices. Our main finding is that climaterisk factors improve the out-of-sample performance of the HAR-RV model mainly at longer forecast horizons (month or beyond). Our main finding is robust to estimating the HAR-RV model by the ordinary least squares technique, and to using various shrinkage estimators. We discuss the implications of our results for policymakers and investors.

Keywords: Climate risks; Realized volatility; Agricultural commodities; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 C53 Q02 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2021-11
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202177

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