Journal article
How do global commodities react to increasing geopolitical risks? New insights into the Russia-Ukraine and Palestine-Israel conflicts
Energy economics, v 138, 107812
Oct 2024
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
The present study examines the impact of geopolitical risk on global commodities returns by including both major conflicts spanning from January 3, 2023 to December 18, 2023 to cover both the Russia-Ukraine and Palestine-Israel wars. Our study utilizes the QVAR model, the Quantile-on-Quantile regression (QQR) and the frequency causality test. Surprisingly, during the pre-conflict period, our findings reveal a weak positive influence of GPR on commodities, indicating their resilience to extreme negative shocks. Variance decompositions further highlight the limited role of GPR in explaining the commodity price variance. The spillover analysis highlights a low interconnectedness between GPR and commodities, demonstrating a high hedging effectiveness against expected negative GPR shocks. The heterogeneous reaction of commodities to extremely positive GPR shocks suggests diverse responses, emphasizing the need for nuanced investment strategies. Conversely, during the crisis periods, commodities exhibit a resilience to both negative and positive shocks from geopolitical tensions, therefore, presenting diversification opportunities for investors. The causality frequency analysis emphasizes the complex dynamics between GPR and commodities in both the time and frequency domains. Our study also offers significant implications for investors, portfolio managers, and policymakers, advocating for recognition of the weak pre-conflict link between GPR and commodities.
•The impact of geopolitical risk on global commodities returns during major events.•Weak positive influence of Geopolitical Risk (GPR) on global commodities.•Spillover analysis highlights low interconnectedness between GPR and commodities.•Heterogeneous reactions of commodities to extreme positive GPR shocks.•Commodities demonstrate resilience to both shocks from geopolitical tensions.•Causality analysis highlights the complex dynamics between GPR and commodities.
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Details
- Title
- How do global commodities react to increasing geopolitical risks? New insights into the Russia-Ukraine and Palestine-Israel conflicts
- Creators
- Nasir Khan - University of Central PunjabSami Mejri - Faculty of Management and Economics, El Manar University, TunisiaShawkat Hammoudeh - Drexel University, Economics (School of Economics)
- Publication Details
- Energy economics, v 138, 107812
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:001295588000001
- Scopus ID
- 2-s2.0-85200985850
- Other Identifier
- 991021895743104721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Economics