Time-Varying Implied Volatility Spillover between Energy and Agricultural Markets

ABSTRACT: In recent years, agricultural markets have experienced elevated volatility. This research examines the time path and magnitude of volatility translation across major agricultural commodities and energy markets and compares causal relationships between pre-ethanol boom and post-ethanol boom time periods. Results reveal strong evidence for time variation in volatility spillover between grain and energy markets. Although the energy mandate created a direct link between crude oil and corn price variability, after a few years, the market readjusted, leading to crude oil and corn market risk becoming less connected.