Global Uncertainties and Commodity Returns

Abstract

The relationship between commodity returns and global uncertainties has become a focal point of interest for researchers, particularly due to the increasing volatility in global markets. Commodities, as essential assets in the global economy, are often subject to fluctuations driven by factors such as geopolitical risks, economic policy uncertainties, and market shocks. This study investigates the extent of interconnection between global uncertainties and commodities returns at the global level using quantile regression and time and frequency domain analysis (Bivariate wavelet analysis). Utilising a monthly data from January 1, 2000, to December 31, 2023, the result from the quantile regression indicates an asymmetrical association between economic policy uncertainty and the selected commodities. Further, the bivariate wavelet reveals that the interdependence between the variables in the long term seem to be more pronounced compared to those in the short to intermediate term. With regards to the multiple wavelets, the result reveals a heightened connections among the variables during long-term periods, indicating that as a result of the integration of the global financial market, the commodity market is capable of reacting to external shocks. Therefore, investors are advised to implement risk management techniques such as allocating a portion of their portfolios to commodities or to diversify among these commodities during the period of induced market fluctuations caused by economic uncertainties and downtown. Also, policymakers should ensure that policies about the commodities should be formulated in a way to protect the commodity market from heightened shocks from these global uncertainties.