OIL VOLATILITY-OF-VOLATILITY AND TAIL RISK OF COMMODITIES

  • Yahua Xu
  • Alireza Tourani-Rad
  • Tai-Yong Roh

Abstract

We examine the information content of oil volatility-of-volatility (VOV), constructed from the past 1-month OVX (implied volatility in crude oil market), on the expected tail risk of commodities. Specifically, we find oil VOV predicts 1-step-ahead tail risks of Energy, Precious Metals, Agriculture, Livestock sectors and the Aggregate Commodity sector (GSCI) for both in-sample and out-of-sample. Our results indicate the important role of crude oil in overall commodity markets by incorporating forward-looking information of OVX. Our findings are robust and complement the strand of literature about the leading role of crude oil in commodity markets.  

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Published
2024-10-08
How to Cite
Xu, Y., Tourani-Rad, A., & Roh, T.-Y. (2024). OIL VOLATILITY-OF-VOLATILITY AND TAIL RISK OF COMMODITIES. Applied Finance Letters, 13, 223-236. https://doi.org/10.24135/afl.v13i.809
Section
Articles submitted to regular issue