Importance of geopolitical risk in volatility structure: New evidence from biofuels, crude oil, and grains commodity markets
研究了2013年至2023年全球石油、生物燃料和谷物市场价格波动的复杂关联，发现谷物市场主导跨市场波动溢出，乙醇是波动净传递者，俄乌战争深刻改变了波动结构。
This paper aims to explore the complex linkages and evolving structure of price volatility in the global oil, biofuels, and grain commodity markets during periods of global turbulence. With the growing urgency for energy stability amid climate change, biofuels are gaining traction as a viable alternative energy source. However, their production can significantly impact essential commodities like grains and vegetable oils, increasing food prices and heightened market volatility. We introduced a TVP-VAR frequency connectedness method to address this, analyzing data from January 1, 2013, to September 29, 2023. Our approach offers a fresh perspective on market dynamics and geopolitical risks. The study underscores the growing influence of agricultural shocks on energy markets, particularly within the ethanol sector. It confirms that the Russia-Ukraine war, a significant geopolitical event, has had a profound and enduring impact on the interconnectedness of these markets across various timeframes and frequencies. We offer concrete, actionable policy recommendations to mitigate the transmission of market shocks within the energy and food sectors, thereby bolstering investor and policymaker confidence and facilitating informed decision-making. • This paper explores the spillover between biofuels, crude oil, and grain markets. • We find that the grain commodity market dominates cross-market volatility spillover. • We find that ethanol is a volatility net-transmitter to commodity markets. • The model integrates diverse risk preferences of short-term and long-term investors. • Russia's invasion of Ukraine influenced significant changes in the volatility structure.