Spillover effects and volatility persistence in agricultural commodities: an empirical study of Lumber, Grain and Soft markets

This study examines the dynamics of return spillovers in the Lumber, Grain and Soft commodity markets, by adopting the DY 2012 Spillover Framework on the daily frequency data from January 2010 to December 2023. The findings confirm the interconnectedness and spillover effects among various agricultural commodities, quantified by a spillover index value of 20.90%, indicating a notable degree of market interconnectedness. The net spillover analysis shows that Corn Futures emerge as major return spillover transmitters, however, while Oats and Coffee Futures are identified as the primary recipients. Furthermore, the GJR-GARCH model result revealed that Lumber Futures exhibit the highest level of volatility persistence, followed by Sugar Futures, highlighting the presence of asymmetric volatility behaviours. However, Oats and coffee show a negative leverage effect in the market. The DCC-GJR-GARCH model further reveals time-varying correlations among commodity pairs, with persistently high co-movement observed across the sample period. Our research findings contribute to the in-depth understanding of the complex dynamics of the agricultural commodity market and provide significant insights to financial investors and policymakers.