Macro News and Commodity Returns

This paper adopts a vector autoregression-generalized autoregressive conditional heteroscedasticity approach to model the dynamic linkages between both mean and variance of macro news and commodity returns (Gold, Corn, Wheat, Soybeans, Silver, Platinum, Palladium, Copper, Aluminium and Crude Oil) over the period 01/01/2001-26/09/2014. The chosen specification also controls for the effect of the exchange rate. The results can be summarized as follows. Mean spillovers running from news to commodity returns are positive with the exception of Gold and Silver. Volatility spillovers are bigger in size and affect most commodity returns. Both first-moment and second-moment linkages are stronger in the post-September 2008 period. Overall, our findings confirm that commodities, despite not being financial assets, are sensitive to macro news (especially their volatility) and also suggest that the global financial crisis has strengthened such linkages. Copyright (c) 2016 John Wiley & Sons, Ltd.