Extreme risk spillovers between crude palm oil prices and exchange rates

Go, You-How and Lau, Wee-Yeap (2021) Extreme risk spillovers between crude palm oil prices and exchange rates. North American Journal of Economics and Finance, 58. ISSN 1062-9408, DOI https://doi.org/10.1016/j.najef.2021.101513.

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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.

Item Type: Article
Uncontrolled Keywords: Crude palm oil; Foreign exchange; Extreme risk spillovers; Granger causality in risk; Global financial crisis; Malaysia
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Divisions: Faculty of Economics & Administration
Depositing User: Ms Zaharah Ramly
Date Deposited: 13 Apr 2022 07:04
Last Modified: 13 Apr 2022 07:04
URI: http://eprints.um.edu.my/id/eprint/26899

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