Exogenous impacts on the links between energy and agricultural commodity markets

- Exogenous factors are considered in the variation of price links between the energy and agriculture markets.
- We employ multivariate normal mixture models to capture the structural properties of price dependencies at the level of underlying states.
- Abrupt changes in the overall correlations and significant structural heterogeneity in the underlying states coexist only during the financial crisis.
- In addition, the dependence features obtained from the tails provide supportive evidence for the underlying structure analysis.
- We conclude that the global financial crisis is the most influential shock on the price links between energy and agricultural commodities.

The main purpose of this paper is to identify the effects of exogenous factors, which have been somewhat controversial, on the price links between the energy and agricultural commodity markets. Our study differs from other studies by employing multivariate normal mixture models to capture the structural properties of the price dependencies in the underlying states. This paper investigates price dependencies from both quantitative and structural perspectives. By analyzing the overall dependencies and structural heterogeneity in the empirical results, we conclude that the global financial crisis is the most influential shock on the price links between energy and agricultural commodities. Because price links are vulnerable to financial shocks, our results also suggest introducing state-based analysis to risk management and portfolio diversification across the energy and agriculture markets during times of turmoil.