Extreme risk spillovers between crude palm oil prices and exchange rates
Document Type
Article
Publication Date
11-1-2021
Abstract
This study is the first attempt to examine the extreme risk spillovers between Malaysian crude palm oil (CPO) and foreign exchange currencies of the three largest CPO importers: India, the European Union and China throughout the global financial crisis. Using daily data of three currencies, CPO spot and futures from 2000 to 2018, our results show: First, before the crisis, the unexpected change in foreign exchange rates is the primary driver of risk spillover to the CPO market. Second, during the crisis, the extreme movement of CPO spot returns is dominant in the Malaysian exchange rates relative to the euro. Third, after the crisis, the spillover flows from the CPO market to the foreign exchange market. Overall, our findings show the importance of CPO pricing dynamics in mitigating foreign exchange risk over the crisis period. This paper contributes to the extant literature by recognizing the effect of risk spillover on the targeted foreign exchange rate for portfolio allocation.
Keywords
Crude palm oil, Foreign exchange, Extreme risk spillovers, Granger causality in risk, Global financial crisis, Malaysia
Divisions
FacultyofEconomicsAdministration
Publication Title
North American Journal of Economics and Finance
Volume
58
Publisher
Elsevier Science Inc
Publisher Location
STE 800, 230 PARK AVE, NEW YORK, NY 10169 USA