Journal
FINANCE RESEARCH LETTERS
Volume 50, Issue -, Pages -Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/j.frl.2022.103264
Keywords
Russia-Ukraine conflict; Commodity market; Volatility risk; Geopolitical risk
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Funding
- National Natural Science Foundation of China [72173144, 71973162, 71801117]
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The intensification of the Russia-Ukraine conflict significantly increases the volatility of agricultural, metal, and energy markets. The conflict affects these markets through both economic and financial channels, with commodities exported by Russia having higher volatility risk. Investor panic and the monetary policy of major central banks amplify the impact of the Russia-Ukraine conflict.
We construct a new index to measure the intensity of the Russia-Ukraine conflict and use it to examine to what extent and through which channels does this conflict affect the volatility risk of commodity markets. Our results suggest that the intensification of the Russia-Ukraine conflict significantly increases the volatility of agricultural, metal, and energy markets. The conflict affects these markets through both economic and financial channels. Regarding economic channels, after the escalation of conflict, the higher the global market share of a commodity exported by Russia, the higher the volatility risk for that commodity. Regarding financial channels, investor panic and the monetary policy of the major central banks amplify the impact of the Russia-Ukraine conflict. Commodity markets are more volatile when the Russia-Ukraine conflict escalates during periods when Russia's foreign exchange reserves are high.
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