Time-frequency analysis between Bloomberg Commodity Index (BCOM) and WTI crude oil prices


Shahzad U., Jena S. K. , Tiwari A. K. , Dogan B., Magazzino C.

RESOURCES POLICY, vol.78, 2022 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 78
  • Publication Date: 2022
  • Doi Number: 10.1016/j.resourpol.2022.102823
  • Title of Journal : RESOURCES POLICY
  • Keywords: Bloomberg commodity index, Oil price, Time-frequency, Wavelet analysis, WAVELET COHERENCE, FINANCIALIZATION, INVESTMENT, MARKETS

Abstract

The price movement of commodities in general and crude oil, in particular, are critical for both commodityconsuming and producing countries. The prime objective of this study is to examine the characteristic behavior of commodity futures and commodity index and the dynamic relationships between commodity index and commodity futures. The study first investigates the evolution of volatility of Bloomberg commodity index (BCOM) and WTI crude oil (CRUDE) prices at different time scales using Wavelet Power Spectrum Analysis. Second, the correlation and causality between BCOM and CRUDE are investigated using Wavelet Coherency and Phase Difference methodology. The average level volatility of BCOM and CRUDE is different at different time scales. Wavelet Coherence shows that they are correlated in medium to long term periods and not in the short term. Further, during the period of changed correlation structure over the study period, the causality structure between BCOM and CRUDE is also changed at different time scales. Therefore, policy measures to control prices should be different in the short term than in the medium to long term when both the prices are not correlated.