Option-Implied Expectations in Commodity Markets and Monetary Policy

55 Pages Posted: 25 Feb 2016

See all articles by Athanasios Triantafyllou

Athanasios Triantafyllou

University of Athens, School of Law, Economics & Political Science, Faculty of Economics, Students

George Dotsis

National and Kapodistrian University of Athens - Faculty of Economics; Essex Finance Centre, Essex Business School, University of Essex

Date Written: January 28, 2016

Abstract

In this paper we estimate the dynamic interactions between option-implied variance and skewness in agricultural commodity markets and monetary policy. Using a structural vector autoregressive (SVAR) framework, we find that an expansionary (contractionary) monetary policy upwardly (downwardly) revises commodity markets’ expectations about the price and volatility path of agricultural products. On the other hand, our empirical analysis reveals that monetary policy does not have a systematic and timely response to sudden changes in option implied expectations of commodity investors. In addition, we provide empirical evidence showing the robust forecasting power of agricultural option-implied information on monetary policy with R2 values reaching almost 52%.

Keywords: Monetary Policy, Implied Variance and Skewness, Agricultural Commodities

JEL Classification: E44, E52, G12, Q14

Suggested Citation

Triantafyllou, Athanasios and Dotsis, George, Option-Implied Expectations in Commodity Markets and Monetary Policy (January 28, 2016). Available at SSRN: https://ssrn.com/abstract=2736181 or http://dx.doi.org/10.2139/ssrn.2736181

Athanasios Triantafyllou

University of Athens, School of Law, Economics & Political Science, Faculty of Economics, Students ( email )

8 Pesmazoglou street
Athens
Greece

George Dotsis (Contact Author)

National and Kapodistrian University of Athens - Faculty of Economics ( email )

Greece

HOME PAGE: http://sites.google.com/site/gdotsis/

Essex Finance Centre, Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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