Abstract:

This study investigates the impact of the Russian-Ukrainian war on the dynamic volatility connectedness between food prices and various financial assets. Between 01.01.2015 and 31.05.2023, daily closing values of wheat, corn and rice prices and stock (MSCI ACWI), bond (MOVE), commodity (S&P GSCI) and agricultural commodity (S&P GSCI Agriculture) market indices are used to analyze the dynamic connectedness relationship with the Time-Varying Parameter Autoregressive (TVP-VAR) model. According to the average dynamic interconnectedness results, agricultural commodity markets, corn and stock markets are net volatility transmitters, while other markets are net volatility receivers; geopolitical risks due to war increase the overall dynamic interconnectedness between the volatilities of financial assets. During the analyzed period, the variables were found to change continuously as volatility receivers and transmitters. After the war, wheat and equity markets sharply became net volatility transmitter, while rice and bond markets became net volatility receivers. Furthermore, it has been observed that there is volatility spillover from agricultural commodity markets to all markets except the stock market, and from other markets outside the bond and commodity markets to rice prices.

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