Annals of Operations Research

https://doi.org/10.1007/s10479-022-04876-0

ORIGINAL RESEARCH

Do commodity assets hedge uncertainties? What we learn

from the recent turbulence period?

Md. Bokhtiar Hasan1 · Md. Naiem Hossain1 · Juha Junttila2 ·

Gazi Salah Uddin3 · Mustafa Raza Rabbani4

Accepted: 15 July 2022

© The Author(s) 2022

Abstract
This study analyses the impact of different uncertainties on commodity markets to assess
commodity markets’ hedging or safe-haven properties. Using time-varying dynamic condi-
tional correlation and wavelet-based Quantile-on-Quantile regression models, our findings
show that, both before and during the COVID-19 crisis, soybeans and clean energy stocks
offer strong safe-haven opportunities against cryptocurrency price uncertainty and geopo-
litical risks (GPR). Soybean markets weakly hedge cryptocurrency policy uncertainty, US
economic policy uncertainty, and crude oil volatility. In addition, GSCI commodity and
crude oil also offer a weak safe-haven property against cryptocurrency uncertainties and
GPR. Consistent with earlier studies, our findings indicate that safe-haven traits can alter
across frequencies and quantiles. Our findings have significant implications for investors
and regulators in hedging and making proper decisions, respectively, under diverse uncertain
circumstances.

Keywords Uncertainties · COVID-19 · Commodities · Safe-haven · DCC-GARCH ·

Quantile-on-quantile

B Gazi Salah Uddin

[email protected]
Md. Bokhtiar Hasan
[email protected]
Md. Naiem Hossain
[email protected]
Juha Junttila
[email protected]
Mustafa Raza Rabbani
[email protected]
1 Department of Finance and Banking, Islamic University, Kushtia 7003, Bangladesh
2 School of Business and Economics, University of Jyväskylä, Jyväskylä, Finland
3 Department of Management and Engineering, Linköping University, Linköping, Sweden
4 Department of Economics and Finance, College of Business Administration, University of Bahrain,
Sakhir, Bahrain

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JEL Classification C22 · C58 · G11 · G15

1 Introduction

Investors are generally concerned about various market-related risks and uncertainties when
investing their funds in financial and commodity markets (Naeem et al., 2021; Zhang &
Yan, 2020). As a result, they search for investable assets that provide hedging opportunities
against threats posed by financial markets, adverse economic policy changes, and financial
crises such as the 2008 global financial crisis (GFC), the COVID-19 pandemic, etc. The risk-
averse investors may suffer from indecisive investments because the global stock markets
have responded strongly to growing global risks and fluctuating inter-market connections
(Zhang et al., 2020). If the list of diversifiable assets is widened, it will aid investors in
making investment decisions more adaptively in the face of uncertainties and crises.
We consider and analyze five vital commodity market assets: the general Goldman Sachs
Commodity Index (GSCI), West Texas Intermediate (WTI) crude oil, natural gas, soybeans,
and clean energy (CE) stocks to reveal if they can give any hedging possibility against
various global uncertainties such as the cryptocurrency policy and price uncertainty (UCRY
Policy and Price) indexes, the US economic policy uncertainty (USEPU) index, the Chicago
Board Options Exchange (CBOE) volatility index (VIX), the CBOE crude oil volatility index
(OVX), and the geopolitical risk (GPR) index.
Commodities are critical to the global economy as they are used as inputs in producing
various goods (Chevallier & Ielpo, 2013). Therefore, the commodity market demand/supply
shocks due to risk and changing uncertainty conditions can cause price volatility, which can
have severe ramifications for the industries that use these commodities (Larosei and Mally,
2016). Although commodities are not financial assets, their prices may have a connection
with financial asset prices, as the commodity markets are dependent on many macroeconomic
factors, including economic policies (Roache & Rossi, 2009, Larosei and Mally, 2016).
Many investors invest in commodities not only for the purpose of acquiring ownership but
also for the benefit of diversification or hedging for their portfolios (Larosei and Mally,
2016). Therefore, equity investors in specific industries where these commodities are used in
manufacturing must be aware of commodity price fluctuations. Also, when designing policies
that need real-time monitoring, a real-time assessment of commodities’ hedge or safe-haven
capabilities is crucial. As a result, exploring various factors that may impact the commodity
markets is crucial to investors, government agencies, and other stakeholders, which leads
us to consider the commodity market. Furthermore, because some of the aforementioned
commodity market assets have been demonstrated to have a negative influence on the stock
and bond markets, they may emerge as an alternative investment tool, bolstering the long-term
asset diversification strategies (Gorton & Rouwenhorst, 2006; Ji et al., 2020).
Although there is also some empirical evidence for the influence of various uncertainty
indices on commodity markets, the evidence for the effect of cryptocurrency uncertainty
indices has yet to be documented. However, in recent years, the cryptocurrency market has
experienced unprecedented growth. According to CoinGecko, 2021 was a milestone year
for the cryptocurrency market, with more than $3 trillion in market capitalization (Hart,
2021). In 2021, investors worldwide invested over $30 billion in cryptocurrencies, which is
more than all previous years combined (Dailey, 2021). As a result, individuals globally have
embraced cryptocurrencies as a means of transaction. Noticing the trend, a growing number
of well-known organizations, including Microsoft, Tesla, Amazon, Visa, PayPal, Starbucks,

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and others, have either embraced or are planning to accept cryptocurrencies as a payment
form. Hence, in addition to the fiat currency, cryptocurrencies as a medium of exchange are
increasingly becoming a vital part of the economy worldwide. Since the volatility of fiat
currency exchange rates of several major currencies (e.g., USD, GBP) has empirically had a
significant effect on commodity prices (Arezki et al., 2014; Rossi, 2013; Zhang et al., 2016),
the volatility in cryptocurrency markets is likely to influence commodity prices as well, which
is still unexplored.
Moreover, cryptocurrencies are now termed crypto commodities, and hence, they have a
connection with other commodity assets (Mo et al., 2022). Accordingly, uncertainty stem-
ming from the crypto market in terms of both policy and price may also have an influence
on the commodity markets. Scant previous research has recently focused on this issue. For
instance, Hassan et al. (2021) find a significant impact of both UCRY Policy and Price on
metal commodity markets. Similarly, Elsayed et al. (2022) reveal that UCRY index changes
spill over strongly on gold markets. According to Yin et al. (2021), the long-term volatility of
cryptocurrency markets has a considerable impact on the oil market. Bejaoui et al. (2022) also
discover a strong correlation between Bitcoin and commodity assets such as crude oil and
natural gas. Hassan et al. (2022) recently examined the relationship between the cryptocur-
rency environmental attention index (ICEA) and three asset classes, including commodity
markets, and found that the commodity assets, such as soybeans, had a positive correlation
with it. Hence, it appears that the cryptocurrency market and its uncertainty are linked to
the commodity markets, so the crypto market’s uncertainty is likely to be connected with
other commodity markets, which requires investigation for more comprehension. All of these
previous findings have motivated us to include the cryptocurrency uncertainty measures in
this study.
The UCRY Policy and Price indices,1 introduced by Lucey et al. (2022), are recent inno-
vations in this respect and have already been found to be significant in forecasting the risks
that arise from the cryptocurrency marketplaces. Considering the most recent events, i.e., the
COVID-19 pandemic, Lucey et al. (2022) note that the cryptocurrency uncertainty indices
may move differently from other risk and uncertainty indicators, indicating hedging opportu-
nities. Thus, we explore four other uncertainty indices to verify this statement—i.e., USEPU,
VIX, OVX, and GPR. Using this approach, we can determine the influence of uncertainty
indices on commodity assets, identify safe-haven assets against these uncertainties through-
out the sample period and COVID-19 crises, and compare the cryptocurrency uncertainties’
impacts with those of the other four uncertainty indicators.
The existing literature on the impact of uncertainty indicators has increased considerably
and claims that several uncertainty indicators have a significant influence on financial markets.
In contrast, research on cryptocurrency policy and price uncertainty is still scarce. To the
best of our knowledge, only three studies (Elsayed et al., 2022; Hasan et al., 2022; Hassan
et al., 2021) have investigated the role of the UCRY Policy and Price indices on different
asset classes. Hasan et al. (2022) test the potential and conventional safe-haven assets (gold,
Bitcoin, US Dollar, DJ Islamic, Sukuk, and WTI) against UCRY Policy. Conversely, Hassan
et al. (2021) and Elsayed et al. (2022) use both UCRY Policy and Price to examine the
precious metals’ safe haven properties: gold, silver, platinum, and palladium. Our study
differs from the studies above by focusing on five different commodity assets—GSCI, WTI
crude oil, natural gas, soybeans, and CE—to see their hedging opportunities against six

1 UCRY Policy and Price indices are introduced to capture the uncertainties arising from the cryptocurrency
markets. For more details concerning such indices, see Lucey et al. (2022).

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different uncertainties, including UCRY Policy and Price. Also, our study diverges from
these studies from a methodological standpoint.
The studies mentioned above leave out some crucial points, such as whether the cryptocur-
rency uncertainty indices behave differently with respect to the asset returns compared to the
other types of uncertainty indices, as there are some differences in the construction and basic
ideas between the cryptocurrency and other uncertainty indices (Lucey et al., 2022). Second,
determining the assets’ safe-haven potential during the COVID-19 pandemic is crucial since
safe-haven is especially relevant during market downturns and crises (Baur & Lucey, 2010).
In light of the preceding, this research aims to address the following unexplored research
issues. First, how are the commodity assets linked to the various uncertainties? Second, do
the commodity assets provide hedging benefits in the face of uncertainty? Third, do commod-
ity assets’ hedging attributes alter across time, especially before and during the COVID-19
crises? Finally, do the cryptocurrency uncertainty indicators differ from the other uncertainty
indices (USEPU, VIX, OVX, and GPR) in terms of their links to the commodity markets?
Employing the DCC-GJR-GARCH (1,1) and wavelet-based Quantile-on-Quantile (QQ)
regression models from December 30, 2013, to April 22, 2021, our study finds that only
soybean and CE stock markets have strong safe-haven properties against UCRY Price and
GPR, even during the COVID-19 crisis. However, our study also finds weak safe-haven
behavior in the GSCI commodity and WTI against both the cryptocurrency uncertainty indices
and GPR. Finally, we assert that the UCRY indices impact commodities differently from other
uncertainty indicators, excluding GPR.
Our study contributes to the existing literature from five viewpoints. First, unlike earlier
studies, this study considers five vital commodity assets to assess the probable effects of six
popular uncertainty indices and to detect these assets’ hedging and safe-haven potential in
the face of such uncertainties. Second, we mainly discuss the characteristics of the volatility
and dynamic associations between the commodity assets and uncertainty factors before and
during the COVID-19 crisis. Third, our findings show that the soybean market has a higher risk
hedging potential than the others when it comes to UCRY Policy and Price, USEPU, OVX,
and GPR, and thus can be utilized to safeguard investors’ portfolios from financial losses
caused by these uncertainties. Fourth, according to our understanding, following Lucey et al.
(2022), we are the first to confirm that the UCRY Policy and Price influence assets differently
than the other uncertainty indices. Finally, we extend the list of alternative investment assets
to provide hedging benefits, especially during market downturns.
The remaining structure of the paper is as follows. Section 2 reviews the related literature;
Sect. 3 explains the data and summary statistics; Sect. 4 provides methodology; Sect. 5
represents, analyzes, and discusses the findings of this study; and finally, Sect. 6 concludes
the study.

2 Literature review

Financial markets are adversely affected by many types of uncertainty, exacerbated by finan-
cial crises in recent decades—for example, the Asian financial crisis in 1997, GFC 2008,
and COVID-19. These uncertainties and crises cause investors to suffer significant losses,
prompting them to look for alternative assets with hedging and safe-haven properties. How-
ever, prevailing safe-haven assets, such as gold, Treasury bonds, foreign currencies, and
Bitcoin, do not often safeguard investors against financial crises (Hasan et al., 2021a; Shahzad

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et al., 2019). As a result, recent studies seek safe-haven characteristics in other assets, such
as commodity assets (especially the general GSCI index, WTI, and soybeans).
As such, some studies in the extant literature (e.g., Azar & Chopurian, 2018; Bouri et al.,
2020; Fernandez, 2019; Hasan et al., 2021a; Shahzad et al., 2019) consider the general GSCI
commodity index to assess the safe-haven ability of commodity markets, as well as the
spillover effect or relationship with different assets or uncertainty measures. More specifi-
cally, Shahzad et al. (2019) and Bouri et al. (2020) reveal that the GSCI commodity index
might serve as a weak safe-haven asset against the risks in stock market returns. Similarly,
Azar and Chopurian (2018) show that the commodity index serves as a risk diversifier in
G7 countries against market volatility during some circumstances. Moreover, Badshah et al.
(2019) find that the commodity index is positively and significantly linked to the economic
policy uncertainty (EPU) index but insignificantly associated with the stock market uncer-
tainty (VIX) index. However, Hasan et al. (2021a) discovered no safe-haven features of the
GSCI commodity index for the US stock markets during the GFC 2008 and the subsequent
COVID-19 crisis.
The WTI oil market is perhaps the most important and widely studied commodity market.
A number of studies have looked at the WTI’s hedging capabilities in the face of various types
of uncertainty but with conflicting results. Arunanondchai et al. (2020), Ji et al. (2020), and
Tarchella and Dhaoui (2021), for example, trace the WTI’s hedging function, particularly
during the COVID-19 crisis. Dahl et al. (2020), Elie et al. (2019), Jin et al. (2019), and
Hasan et al., (2021a, 2022), on the other hand, investigate the safe-haven properties of WTI
and find none. Likewise, Hasan et al. (2021a) reveal the inconsistent result about WTI’s
safe-haven role in the GFC 2008 and COVID-19 for the US stock markets. However, the
findings of Lei et al. (2019) are mixed. They show that before the financial crises, EPU has
a considerable negative influence on WTI, but the coefficient turns positive after the crises.
Similarly, Aloui et al. (2016) find a negative relationship between uncertainties (EPU and
equity market uncertainty (EMU)) and crude oil returns during normal times but a positive
relationship during financial crises. Zhang and Yan (2020) unveil that the WTI returns are
negatively affected by different EPU indices. However, Antonakakis et al. (2017) and Qin
et al. (2020) document a negative impact of geopolitical risk on WTI.
Despite the scarcity of research on the subject, natural gas—another crucial commodity
asset—can provide a useful hedging strategy. Arunanondchai et al. (2020) look into exchange-
traded funds (ETFs) to hedge energy commodity tail risk. They show that ETFs offer greater
downside risk protection in the natural gas markets. Badshah et al. (2019) find natural gas
a strong shelter against EPU. Zhang et al. (2017) find that the stock market volatility (VIX
and VSTOXX) has a spillover effect on WTI and natural gas markets.
Another vital commodity market related to the emerging asset class, i.e., the soybeans, has
also been evaluated as a prospective safe haven from other angles against market uncertainty in
several earlier studies (e.g., Badshah et al., 2019; Dahl et al., 2020; Ji et al., 2020). According
to Ji et al. (2020), soybeans were a powerful risk diversifier and safe-haven asset during
COVID-19. Chang and Su (2010) also find strong volatility spillovers across crude oil, corn,
and soybean markets.
Several studies have looked into CE equities, which may be regarded as one of the
most sophisticated energy market assets due to current worries about climate change (e.g.,
Albulescu et al., 2019; Dutta, 2017; Dutta et al., 2020; Pham, 2019). However, in previous
studies, only a few have identified CE’s hedging ability. For example, at the lower tails of
the return distribution, Albulescu et al. (2019) ratify the CE stock market as a powerful risk
diversifier in the case of severe bull market events. Pham (2019) documents a heterogeneous
association between oil price and CE stocks and finds evidence of the hedging effectiveness

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of CE investments against the oil price shocks. Moreover, Dutta (2017) finds that the CE
stock market returns are highly vulnerable to the WTI volatility index (OVX). However, in
the case of energy sector volatility (VXXLE), Dutta et al. (2020) uncovered a negative impact
on CE stocks during high and low volatility regimes.
From the above literature, some issues stand out. First, past findings on the impact of
various uncertainty measures on chosen commodities are equivocal. As a result, there is no
consensus on their hedging efficacy. Second, among the selected commodities, only the WTI
market has been widely researched. Still, few have considered the GSCI commodity, natural
gas, soybeans, and CE stock returns to trace their hedging potential against various kinds of
uncertainty, including USEPU, VIX, OVX, and GPR. Furthermore, the recently introduced
cryptocurrency uncertainty (UCRY Policy and UCRY Price) measures are entirely missed
in this context. Therefore, the safe-haven properties of alternative financial assets against
these cryptocurrency uncertainty indices are crucial to explore for investors’ benefit. Third,
to the best of our knowledge, no single study has yet considered six uncertainty indices (i.e.,
UCRY Policy, UCRY Price, USEPU, VIX, OVX, and GPR) simultaneously to find hedging
tools from commodity markets. This study, however, intends to bridge the literature gaps
mentioned above.

3 Data and preliminary analysis

In the empirical regression models used in this study, the dependent variables are the five key
commodity assets’ returns, whereas the independent variables are the changes of six familiar
uncertainty indices (see Table 1 for more details). The commodity assets are selected based on
the hedging potentials after reviewing the literature. There are 382 weekly observations in our
sample, which runs from December 30, 2013, to April 22, 2021. We choose the starting date
and data frequency based on the availability of cryptocurrency market uncertainty (UCRY)
indices, and the end of our data sample period is determined by the data availability of the
US economic policy uncertainty index.2 All the price level observations are transformed
into logarithmic returns (value changes in case of the uncertainty measures) to assure the
stationarity of the analyzed time-series data in the empirical analyses.
Figure 1 displays the dynamics of the returns of the commodity market assets and log
changes of uncertainty indices. All variables in the graphs are strongly time-varying, and
their volatility seems to have increased during COVID-19.3 During COVID-19, however,
as the volatility of uncertainty indices rises, so do the returns on commodity market assets,
although not in a comparable way. This could point to the commodity assets’ high sensitivity
to the shocks in the face of a variety of uncertainty.
The descriptive statistics in panel A of Table 2 report that the CE stocks have the high-
est mean returns. In contrast, the WTI market has the lowest mean returns and the largest
volatility among the commodity assets. Conversely, OVX has the highest mean value among
the uncertainty indices, while USEPU has the lowest mean value, with the highest volatility.
Small skewness and high kurtosis values for all the commodity return series suggest that
the distribution is asymmetric and leptokurtic. Thus, all the return series are non-normally
distributed, also evidenced by the Jarque–Bera statistics. However, the Ljung-Box (Qs-20)
2 For keeping conformity of the sample range of each variable, we use weekly data and the sample period,
which forces us to abandon some important uncertainty measures, particularly, macroeconomic and global
financial uncertainty.
3 The starting of COVID-19 period is selected based on the outbreak of coronavirus disease that was first
reported in Wuhan, China, on 31 December 2019 (Hasan et al., 2021b).

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Table 1 Details of variables and data sources

Dimensions Name of variables Abbreviation Sources

Commodity markets S&P GSCI Commodity GSCI www.investing.com

Index
S&P WTI Crude Oil Index WTI
S&P GSCI Natural Gas Natural gas www.spglobal.com
Index
Dow Jones Commodity Soybeans
Index-Soybeans
S&P Global Clean Energy CE
Index
Uncertainty indices Cryptocurrency Policy UCRY Policy https://sites.google.com/
Uncertainty view/cryptocurrency-
Cryptocurrency Price UCRY Price indices/home?authuser=0
Uncertainty
US Economic Policy USEPU www.policyuncertainty.
Uncertainty com
CBOE Volatility Index VIX www.investing.com
CBOE Crude Oil Volatility OVX
Index
Geopolitical Risk Index GPR www.matteoiacoviello.
com/gpr.htm

GSCI, WTI, and CBOE stand for Goldman Sachs Commodity Index, West Texas Intermediate, and Chicago
Board Options Exchange, respectively

results confirm that our time series are free from autocorrelation issues. Furthermore, the
data has no stationarity issues, indicated by the augmented Dickey-Fuller (ADF) and Phillips
and Parron (PP) tests.
The correlation matrix (Table 2, Panel B) depicts that the GSCI commodity, WTI, and
soybean are positively connected with UCRY Policy and Price but negatively with USEPU,
VIX, and OVX. Moreover, the natural gas and CE stocks negatively correlate with UCRY
Policy, USEPU, VIX, and OVX, while they are positively correlated only with UCRY Price.
Conversely, GPR has a significant positive association only with soybeans.

4 Methodology

4.1 Modeling of dynamic conditional correlation

First, we use the dynamic conditional correlation (DCC) model as the primary empirical
approach in this study. The DCC estimation, proposed by Engle (2002), has become a preva-
lent approach to assessing the time-varying correlations between variables in the multivariate
conditional correlation framework. The DCC model can address the dimensionality issue by
decomposing the conditional covariance matrix, while other multivariate GARCH-models
cannot (Ma et al., 2019; Pham, 2019). The DCC approach with the Glosten et al. (1993) (GJR)
model is based on the Generalized Autoregressive Conditional Heteroscedasticity (GARCH)
representation of the data and is thus named the DCC-GJR-GARCH-model. The asymmetric

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Fig. 1 Plots of return series (commodities and uncertainty indices). Note: The shaded areas indicate the returns
during COVID-19 (December 31, 2019, to April 22, 2021)

impacts, in the form of leverage effects, can be addressed using the GJR-GARCH model by
referring to high or low volatility for positive or negative shocks, respectively (Al Mamun
et al., 2020; Hassan et at., 2021). Thus, this study employs the DCC-GJR-GARCH model4
as follows:
rt  μ + ψrt−1 + Et , Et  zt h t , zt ∼ N (1, 1), (1)
where rt  [ri,t , ..., rn,t ] is the (n × 1) vector of the returns on the analyzed assets. μ is
the vector of the constant terms,
 and ψ denotes the coefficient vector of the autoregressive
terms. Et  Ei,t , . . . .., En,t represents the vector of standardized residuals. To regulate the
dynamics of variance, we formulate the conditional volatility from the GJR-GARCH (1, 1)
model as follows:
2
h i,t  ω + α Ei−1
2
+ βσi−1
2
+ ϒ Ei−1
2
It−1 , (2)
where It−1  1 if Et−1 < 0, otherwise It−1  0. ϒ is the leverage term to capture the
asymmetric influence of negative or positive shocks. When ϒ > 0, this indicates that the
4 The GJR-GARCH (1, 1) model, i.e., the representation with one lag for both the variance and squared
residual terms in the GARCH-part is selected based on the Akaike Information Criterion (AIC) and Schwarz
Criterion (SC).

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 Table 2 Summary statistics

lnGSCI lnWTI lnNatural lnSoybeans lnCE lnUCRY lnUCRY lnUSEPU lnVIX lnOVX lnGPR
gas Policy Price

Panel A: Descriptive statistics, autocorrelation, and unit root tests

Mean − 0.001 − 0.004 − 0.001 0.001 0.002 0.000 0.001 − 0.003 0.001 0.002 0.001
Max 0.081 0.276 0.227 0.074 0.169 0.023 0.038 1.635 0.854 0.600 1.125
Min − 0.145 − 0.390 − 0.165 − 0.138 − 0.246 − 0.018 − 0.018 − 1.041 − 0.556 − 0.454 − 0.723
Annals of Operations Research

Std. Dev 0.029 0.058 0.052 0.024 0.039 0.005 0.005 0.330 0.170 0.125 0.244
Skewness − 0.877 − 1.408 0.184 − 0.425 − 0.839 0.729 2.170 0.359 0.883 0.832 0.330
Kurtosis 6.090 12.681 4.489 5.813 11.820 6.459 20.288 4.669 6.155 6.773 4.466
Jarque−Bera 200.960* 1618.202* 37.481* 137.425* 1283.126* 224.327* 5056.778* 52.538* 208.068* 270.662* 41.044*
Qs(20) 39.377* 53.109* 31.006** 42.069* 33.178** 71.747* 74.382* 64.399* 33.729** 36.371** 48.470*
ADF − 16.092* − 5.864* − 17.330* − 17.175* − 11.383* − 15.597* − 14.136* − 15.716* − 13.966* − 20.981* − 12.275*
PP − 16.218* − 15.666* − 17.209* − 17.168* − 18.032* − 36.083* − 36.169* − 34.439* − 26.755* − 21.008* − 128.203*
Panel B: Correlation matrix
lnGSCI 1.000
lnWTI 0.894* 1.000
lnNatural 0.196* 0.121** 1.000
gas
lnSoybeans 0.229* 0.081 0.097*** 1.000
lnCE 0.421* 0.329* 0.079 0.149* 1.000
lnUCRY 0.020 0.039 − 0.014 0.011 − 0.053 1.000
Policy
lnUCRY 0.027 0.034 0.018 0.036 0.014 0.887* 1.000
Price
lnUSEPU − 0.057** − 0.065** − 0.002 − 0.025 − 0.082*** 0.093*** 0.034 1.000
lnVIX − 0.336* − 0.288* − 0.056 − 0.123** − 0.465* 0.112** 0.112** 0.070 1.000
lnOVX − 0.603* − 0.573* − 0.109** − 0.131** − 0.408* 0.073 0.063 0.096*** 0.425* 1.000
lnGPR 0.023 0.006 0.067 0.108** 0.063 0.019 0.054 0.071 − 0.016 0.085*** 1.000

Qs (20) refers to the results from the Ljung-Box test for autocorrelation. ‘*,’ ‘**,’ and ‘***’ designate the significance levels at 1%, 5%, and 10% risk levels, respectively. ln refers to the natural logarithm returns
as the first difference

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negative shocks impact more than the positive shocks. The parameters ω, α, β, and ϒ in
Eq. 2 can assure the stationarity of the conditional volatility process only when the conditions
ω > 0, α, ω, β, ϒ ≥ 0, and ϒ + α+β 2 < 1 are satisfied.
The diagnostic Ljung-Box-tests (Qs-20) depict that the GJR-GARCH specification with
student-t distribution is specified correctly as the residuals are free
 from  autocorrelation

effects. Therefore, it is assumed that E t−1 [Et ]  0 and E t−1 Et , Et−1  Ht , where
E[·]  Ht represents the conditional expression at time t. However, for the conditional
variance–covariance matrix, Ht can be defined as:
1/2 1/2
Ht  Dt R t Dt , (3)
where Rt denotes the n × n time-varying
 correlation  matrix, while the diagonal conditional
variance is specified by Dt  diag h i,t , . . . ., h n,t . Engle (2002) proposes the right-hand
side of Eq. 4 directly instead of Ht as a dynamic correlation framework:
Rt  diag(X t )−1/2 X t diag(X t )−1/2 , (4)

X t  (1 − α − β)K + αdiag(X t )1/2
εi,t−1
εi,t−1 diag(X t−1 )1/2 + β X t−1 , (5)
where K expresses the n × n unconditional covariance matrix for the standardized residuals


εi,t and when α and β are the non-negative values substantial to α + β < 1, the model is
called the DCC-GARCH model.

4.2 Quantile-on-quantile (QQ) approach

As the second empirical approach, we employ the Quantile-on-Quantile (QQ) regression

approach proposed by Sim and Zhou (2015). This estimation technique can detect the relation-
ship between the variables at every phase of the conditional distribution. Thus, the QQ model
yields a comprehensive view of the dependence. This study employs the non-parametric QQ
model to assess how chosen six uncertainty indices’ data series quantiles impact the condi-
tional quantiles of the five selected commodity asset returns. The relationship can be written
as follows:
R At  β θ (X t ) + εtθ , (6)
where R At is the representative of the dependent variables’ logarithmic returns. The unob-
served interconnected functions between R At and X t are presumed by β θ (.), where, X t
represents the uncertainty indices (independent variables). The association between the θ -
quantile of R At (commodity assets) and θ -quantile of X t , signified by X τ , are examined
through linearizing the function of β θ (.) by considering a first-order Taylor expansion of
β θ (.) around X τ , yielding the following illustration:
    
β θ (X t ) ≈ β θ X τ + β θ  X τ X t − X τ . (7)

Following Sim and Zhou (2015), β θ (X τ ) and β θ  (X τ ) can be redefined as β0 (θ , τ ) and

β1 (θ , τ ), respectively. Thus, we re-write Eq. 7 as follows:
 
β θ (X t ) ≈ β0 (θ , τ ) + β1 (θ , τ ) X t −X τ . (8)
Equation 8 is substituted into Eq. 6 and forms Eq. 9 as follows:
 
R At  β0 (θ , τ ) + β1 (θ , τ ) X t −X τ + εtθ . (9)

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Finally, we follow Reboredo et al. (2017) to decompose the asset return distributions using
wavelet decompositions.5 Next, we segregate them into three frequencies corresponding to
4–8, 16–32, and 32–64 weeks for short-run, medium-run, and long-run estimations, respec-
tively. While this study intends to unfold the impact of uncertainty exerted from τ -quantile,
we use a Gaussian kernel based on a particular bandwidth by weighing the observations of
an empirical quantile of uncertainty in the neighborhood.

5 Empirical results and analysis

5.1 DCC-GJR-GARCH (1, 1) estimation

This section reports the findings from the DCC-GJR-GARCH (1, 1) estimation in Table 3
(see Tables 5, 6, 7, 8, 9 and 10 for the details of DCC estimations). The parameters of α
(ARCH 1) and β (GARCH 1) are positive and significant in all the cases (except for the
GSCI commodity index and WTI market with the negative ARCH parameters). The sum
of α and β approaches ≤ 1. Moreover, the GJR-leverage effect (Gamma) is significant for
all the commodities (except soybeans and CE) and the six uncertainty indices. The results
of several diagnostic tests (standardized squared residuals, multivariate Hosking, and Li-
McLeod) and information criteria (Akaike, Shibata, and Hannan-Quin) in Panels B and C
for all the cases confirm the goodness of fit of the GJR-GARCH model with the student-t
distribution that is free from serial correlation. Overall, we observe a mixed impact of several
uncertainties on the time-varying correlations of the commodities.
The UCRY Policy positively correlates with all the commodity assets used in this study.
Conversely, only the UCRY Policy has a significant positive impact on WTI returns in the short
run. In contrast, the long-run effect on CE stock returns is found at the 10% significance level.
Conversely, the UCRY Price has a significant and positive impact on the dynamic correlation
of WTI in the short run, while a long-run influence on soybeans is found at the 10% and
5% significance levels, respectively. This implies that the WTI price might have spillover
from the cryptocurrency uncertainty shocks in the short run. At the same time, both UCRY
Policy and Price significantly impact CE stock in both the short and long run. Conversely,
the UCRY Price has a significant and positive influence on soybean returns only in the long
run. Hence, among others, the CE stock market has a higher impact from cryptocurrency
market shocks. Also, the sum of the DCC parameters (a and b) is less than 1, indicating high
volatility clustering between the UCRY Price and Policy and CE stock returns.
The DCC parameters of all the commodity assets except natural gas are positive and
significantly correlated with USEPU at the 1% level in the long run. However, USEPU
has a positive and significant influence on natural gas in the short run. Moreover, although
all the DCC parameters are positive, only the CE stock returns have a significant long-
run coefficient with VIX at the 1% level. Similarly, except soybean, all commodities are
significantly influenced by OVX in the long run, with a short-run effect only on the GSCI
and WTI. However, GPR significantly positively impacts both GSCI and CE stock in the short
and long run, while only WTI in the long run. Because of the rising geopolitical events, global
energy and oil price volatility have increased, affecting investment decisions, economization,
and asset prices (Smales, 2021). Thus, our DCC findings (both a and b parameters) suggest
the investors should be conscious since both UCRY Price and GPR may have a high volatility

5 Details of the wavelet-based decomposition calculation are available upon request.

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Fig. 2 Time-varying conditional correlations (uncertainty indices vs. commodities). Note: The shaded areas
indicate the COVID-19 period

spillover effect on CE stocks, while OVX and GPR may have on GSCI and WTI. However,
our finding regarding the impact of GPR on WTI is consistent with Smales (2021).
Figures 2 and 3 exhibit the time-varying dynamic conditional correlations between uncer-
tainty indices and commodity assets. Interestingly, there appears to be a structural change in
the connection of commodity market returns with the financial market uncertainties during
the COVID-19 crisis period, indicating a drop in the pairwise correlations during down-
turns and rising circumstances. For example, Fig. 2 (Panel-B) shows that soybeans and CE
stocks have positive and significant correlations with the UCRY Price for the whole period,
with a more volatile correlation during the pandemic than during the normal period. These
results demonstrate that CE stocks and soybeans yield higher returns when the uncertainty
emanates from the cryptocurrency prices, implying that the CE and soybean markets demon-
strate strong hedging opportunities against the UCRY Price, which becomes more robust
during COVID-19. According to Bloomberg (2021), during COVID-19, Bitcoin prices rose
by 300% in 2020 amid speculation in the financial markets where investors hoarded digital
currencies due to the lower interest rates; thus, the European central bank cautioned that the

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Fig. 3 Time-varying conditional correlations (uncertainty indices vs. commodities). Note: The shaded areas
indicate the COVID-19 period

Bitcoin investors might lose everything.6 This may have escalated the cryptocurrency price
uncertainty, evidenced by the steady upward trend in UCRY indices (see Fig. 5). In contrast,
soybean prices fell in the first quarter of 2020 due to the COVID-19 hit, then bounced back
and continued to rise sharply until mid-2021, attributable to the post-COVID-19 recovery of
the global demand (Vos et al., 2022). Realizing the devastating consequences of global cli-
mate change due to increased carbon emissions, the entire world has committed to switching
to clean energy sources to lower the carbon emissions, leading to the sharp growth in this
sector in recent years (Ghabri et al., 2021). These phenomena may cause a positive associa-
tion between CE and soybeans and UCRY Price. However, our findings partially corroborate
the results of Ren and Lucey (2022) and Hassan et al. (2022).
The average correlation (see Table 3) of UCRY Policy and Price (see Fig. 2, Panels A and B)
with GSCI and WTI returns is positive but not throughout the sample period. This implies that
the UCRY Policy and Price can be hedged marginally by investing in GSCI commodity and
WTI markets even during COVID-19. The findings partially contradict Hasan et al. (2022),
who showed that UCRY Policy negatively influences WTI. Similarly, soybeans and CE stocks

6 https://www.bloomberg.com/news/articles/2021-01-29/bitcoin-investors-may-lose-everything-central-
banker-warns.

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Table 3 Results from DCC-GJR-GARCH (1, 1) estimation

Uncertainties Parameters lnGSCI lnWTI lnNatural lnSoybeans lnCE

gas

lnUCRY Avr. Corr 0.077 0.075 − 0.031 0.009 0.003

Policy Dcc (a) 0.091 0.109*** 0.000 0.015 0.000*
Dcc (b) 0.287 0.240 0.510 0.428 0.816***
lnUCRY Avr. Corr 0.065 0.056 0.000 0.011 0.014
Price Dcc (a) 0.080 0.120*** 0.003 0.000 0.000*
Dcc (b) 0.307 0.245 0.874 0.748** 0.744***
lnUSEPU Avr. Corr 0.009 0.018 0.006 − 0.001 − 0.026
Dcc (a) 0.048 0.058 0.000* 0.006 0.028
Dcc (b) 0.747* 0.682* 0.079 0.959* 0.735*
lnVIX Avr. Corr − 0.238* − 0.222* − 0.062 − 0.125** − 0.478*
Dcc (a) 0.049 0.061 0.052 0.037 0.022
Dcc (b) 0.814 0.484 0.4857 0.000 0.925*
lnOVX Avr. Corr − 0.486* − 0.520* − 0.102** − 0.136** − 0.333*
Dcc (a) 0.122** 0.133* 0.000 0.000 0.089
Dcc (b) 0.579* 0.462* 0.985* 0.613 0.603*
lnGPR Avr. Corr 0.512 0.024 0.062 0.128** 0.019
Dcc (a) 0.029** 0.015 0.025 0.000 0.000*
Dcc (b) 0.971* 0.944* 0.001 0.745 0.666***

Dcc (a) and Dcc (b) are the short-run and long-run DCC parameters, respectively. The symbols, ‘*,’ ‘**,’ and
‘***’ indicate the significance at 1%, 5%, and 10% levels, respectively. See Appendix (5, 6, 7, 8, 9 and 10) for
more details

can also marginally hedge the UCRY Policy since they have positive average correlations
with UCRY Policy even during the COVID-19 period (see Panel-A). Conversely, the USEPU
risks can be partially mitigated by GSCI and WTI (Fig. 2, Panel C), as the average correlations
between them are positive (Table 3). The average correlation plunges to negative during the
COVID-19 pandemic, suggesting that in times of crisis, the GSCI commodity and WTI may
not provide safe-haven benefits against USEPU. Our results confirm the previous findings
that the policymakers and investors should always watch economic policy uncertainty, as
it may be a significant source of commodity market volatility (Ahmed & Sarkodie, 2021;
Sarkodie et al., 2022).
Furthermore, because of the oil price war between Russia and Saudi Arabia, the oil price
plunged in early 2020 (Hasan et al., 2021b). On the other hand, the demand for general com-
modities and oil has plummeted substantially during the COVID-19 period due to imposing
various restrictions on global and domestic trade activities as well as imposing lockdown mea-
sures (Ahmed & Sarkodie, 2021; Hasan et al., 2021b). As a result, the commodity markets are
adversely impacted by the EPU, particularly in the COVID-19 period, consistent with Bakas
and Triantafyllou (2020), Ahmed and Sarkodie (2021), Hasan et al. (2022), and Hasan et al.
(2021a). Thus, investors and portfolio managers are suggested to be cautious about investing
in these weak safe-haven assets—e.g., GSCI commodity and WTI—especially during the
global crises.

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Conversely, although the average correlation between natural gas returns and UCRY Price
index changes is zero, it is more volatile during COVID-19 (Fig. 2, Panel B). Likewise, the
average correlation between natural gas (soybeans) and USEPU is negative; however, from
the first quarter of 2014 (2016) to the last quarter of 2016 (first quarter of 2019), the average
correlation was consistently positive (Panel-C). Therefore, natural gas and soybeans were
able to provide a safe-haven opportunity against USEPU during that period, supported by
Badshah et al. (2019) and Ji et al. (2020). However, an extreme negative average correlation
is noticed between USEPU and CE; thus, against the USEPU, CE stocks do not function as
a safe-haven asset, contrasting with Haq et al. (2021), who find CE stocks as a safe haven
against EPU.
Interestingly, all commodities have a positive average correlation with GPR (see Table 3).
However, only natural gas, soybeans, and CE stock strongly correlate with GPR even during
COVID-19 (Fig. 3, Panel-C). Thus, our findings signify that natural gas, soybeans, and CE
stock serve as robust safe-haven tools against GPR, with GSCI and WTI showing weak safe-
haven. During COVID-19, the GPR index declined from 138.42 points on January 01, 2020,
to 64.07 points on December 01, 2020,7 indicating an unprecedented drop in geopolitical
risk globally. However, it is worth noting that the GPR index covers only the non-financial
factors (e.g., war, terror attacks, conflicts between states, etc.), which were absent during
the pandemic, especially in 2020, as the whole world’s concentration turned into a global
health crisis. Conversely, as mentioned above, the commodity market demand and its prices
fell substantially in early 2020 because of the worldwide lockdowns due to the COVID-
19. These events may be the possible reason for the positive association between GPR and
commodities. Nonetheless, our findings are consistent with Ding et al. (2021) and partially
with Smales (2021), but the GPR-WTI nexus contradicts Antonakakis et al. (2017) and Qin
et al. (2020).
Finally, all commodity assets exhibit a negative correlation with VIX and OVX, indicating
that they do not provide safe haven property (Fig. 3: Panels A and B). The VIX and OVX
measure the stock market and oil market volatility, respectively. Because the stock and oil
markets are vital parts of any economy, any volatility or risk in these markets may induce
uncertainty in the rest of the economy, resulting in a negative demand shock in other sectors
like the commodity markets (Bouri et al., 2018; Fernandes et al., 2014; Lin & Tsai, 2019).
As a result, the returns on these assets are reduced, emphasizing the negative association
between commodity markets and VIX and OVX.

5.2 Results from quantile-on-quantile (QQ) regression approach

We further employ the QQ regression technique to reveal the quantile’s impact of different
uncertainties on the conditional distributions of commodities in various frequencies to provide
more insight into their dependency. The QQ results are plotted in Fig. 4A–E, based on short,
medium, and long-run phases. The individual graphs estimate the slope coefficient in the z-
axis for the quantiles of the y-axis (commodities) and x-axis (uncertainties). The bullish and
bearish conditions of the market are represented by upper and lower quantiles of commodities,
respectively. Conversely, the upper and lower quantiles of uncertainties represent the high
and low uncertainty, respectively.
The results in Fig. 4A1 show that in the short run, the lower quantiles (0.05–0.20) of UCRY
Policy negatively impact the lower to upper quantiles (0.05–0.95) of GSCI commodity. Fur-
thermore, the middle to higher quantiles (0.25–0.95) of GSCI are positively influenced by the
7 https://www.matteoiacoviello.com/gpr.htm

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Panel-A
A(1) UCRY Policy vs. Short-run Medium-run Long-run
GSCI commodity
A(2) UCRY Policy vs.
WTI
A(3) UCRY Policy vs.
Natural gas
A(4) UCRY Policy vs.
Soybeans
A(5) UCRY Policy vs.
CE

Fig. 4 A Quantile-on-Quantile estimation (UCRY Policy vs. commodities). Note: The y-axis (commodities)
and x-axis (uncertainties) signify the number from 1 to 19, corresponding to the quantiles from 0.05 to 0.95.
B Quantile-on-Quantile estimation (UCRY Price vs. commodities). Note: For explanation, see Fig. 4A. C
Quantile-on-Quantile estimation (USEPU vs. commodities). Note: For explanation, see Fig. 4A. D Quantile-
on-Quantile estimation (VIX vs. commodities). Note: For explanation, see Fig. 4A. E Quantile-on-Quantile
estimation (OVX vs. commodities). Note: For explanation, see Fig. 4A. F Quantile-on-Quantile estimation
(GPR vs. commodities). Note: For explanation, see Fig. 4A

middle to upper quantiles (0.20–0.95) of UCRY Policy. Similarly, the UCRY Policy impacts
the GSCI positively only in the lower and upper quantiles in the medium-run. Conversely,
the GSCI is negatively impacted until the upper quantile, focusing on the long-run impact.
Thus, when the UCRY Policy is at the normal and riskier conditions, the positive response
of GSCI is noticed in all market circumstances in the short run. Therefore, we observe that
the GSCI commodity can provide a weak safe haven for the short and long run.

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Panel-B
B(1) UCRY Price vs. Short-run Medium-run Long-run
GSCI commodity
B(2) UCRY Price
vs. WTI
B(3) UCRY Price vs.
Natural gas
B(4) UCRY Price vs.
Soybeans
B(5) UCRY Price vs.
CE

Fig. 4 continued

Moreover, in Fig. 4A2, the whole quantiles of the UCRY Policy positively influence the
WTI when the WTI market is bullish (upper quantiles) in the short run. In the medium-run,
a strong positive impact by the lower quantiles of UCRY Policy is found in the lower to
upper quantiles of WTI, whereas against the long-run upper quantiles of UCRY Policy, the
WTI responds negatively throughout the market conditions. Thus, against UCRY Policy, the
WTI market can provide hedging opportunities in the short run. Surprisingly, the natural gas
returns show a strong adverse reaction to UCRY Policy changes in all investment horizons
(Fig. 4A3), suggesting that the natural gas fails to hedge UCRY Policy.
Turning to Fig. 4A4, only the upper quantiles of soybean and UCRY Policy are positively
correlated in the short run. However, soybean has a continuous positive relationship with
UCRY Policy from the lower to higher quantiles of both market returns in the medium-run

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Panel-C
C(1) UCRY Price vs. Short-run Medium-run Long-run
GSCI commodity
C(2) UCRY Price
vs. WTI
C(3) UCRY Price vs.
Natural gas
C(4) UCRY Price vs.
Soybeans
C(5) UCRY Price vs.
CE

Fig. 4 continued

and middle to upper quantiles in the long run. Therefore, soybean can hedge the UCRY Policy
in the medium and long run. Likewise, in Fig. 4A5, lower to middle quantiles (0.05–0.50) of
UCRY Policy impact positively on the lower to middle quantiles (0.05–0.75) of CE returns
in the short-run. Conversely, UCRY Policy has a negative effect on the CE returns (except for
lower–upper and upper quantiles of UCRY Policy and CE, respectively) in the medium-run.
At the higher UCRY Policy, CE strongly mitigates UCRY Policy, reflecting the safe-haven
opportunity of CE stock.
Figure 4B displays the results of UCRY Price and five commodities and exhibits that in
the short-run, from lower to upper quantiles of UCRY Price has a strong positive impact on
the middle quantile of GSCI. Moreover, in the medium run, the lower quantiles of UCRY
Price influence the GSCI positively, while the negative impact is observed in the long run.

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Panel-D
D(1) VIX vs. GSCI
Short-run Medium-run Long-run
commodity
D(2) VIX vs. WTI
D(3) VIX vs. Natural gas
D(4) VIX vs. Soybeans
D(5) VIX vs. CE

Fig. 4 continued

Thus, GSCI serves as a weak hedge against UCRY Price. Likewise, in the short run, Fig. 4B2
unveils that the upper quantiles of WTI are positively affected by the whole quantile of UCRY
Price. Similarly, in the medium and long run, the UCRY Price impacts the WTI negatively
except for the lower quantile of UCRY Price on the middle to higher quantile of WTI in the
medium run. Conversely, natural gas returns are strongly negatively impacted by the UCRY
Price changes in all frequencies, although a positive relationship is observed in the upper
quantile of both.
In Fig. 4B4, the whole quantiles of UCRY Price positively affect the middle to upper
quantiles (0.30–0.95) of soybean returns in the short and long run. Similarly, in the mid-
term, soybean responds positively except for the middle quantiles of UCRY Price. A similar
result is also found in the case of CE stock, e.g., 0.35–0.95 quantiles are positively impacted
by all quantiles of UCRY Price (except 0.30–0.45) in the medium-run. When the UCRY

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Panel-E
E(1) OVX vs. GSCI
Short-run Medium-run Long-run
commodity
E(2) OVX
vs. WTI
E(3) OVX vs. Natural
gas
E(4) OVX vs. Soybeans
E(5) OVX vs. CE

Fig. 4 continued

Price increases, the CE stocks also increase in the long run. Therefore, both the soybean and
CE stock are strong risk diversifiers during high UCRY Price regimes, signifying their robust
safe-haven properties.
Figure 4C1 shows that the lower and higher quantiles of USEPU and lower to higher
quantiles of GSCI are positively associated in the short run. In the medium and long run,
USEPU impacts GSCI negatively in whole quantiles. Likewise, a negative association is also
noticed in Fig. 4C2 in all the cases except the positive impact in the lower quantile (0.05–0.15)
of USEPU on WTI returns. Furthermore, natural gas (Fig. 4C3) is also negatively impacted
by USEPU in both the medium and long run, while only in the short run the positive impact
is noticed in the lower, middle, and higher quantiles of USEPU on the middle to upper, lower
and upper, and lower quantiles of natural gas, respectively. Consistently, in Fig. 4C4, the

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Panel-F
F(1) GPR vs. GSCI Short-run Medium-run Long-run
commodity
F(2) GPRvs. WTI crude
oil
F(3) GPR vs. Natural gas
F(4) GPR vs. Soybeans
F(5) GPR vs. CE

Fig. 4 continued

middle and upper quantiles of USEPU impact positively on the lower to middle quantiles of
soybean in the short run.
Finally, the lower to middle and middle to upper quantiles of USEPU have a positive
impact on all quantiles of soybean in the medium- and long run, respectively, whereas the
USEPU index changes in all investment horizons have a negative impact on CE stock (except
the middle quantile) in the short run. Therefore, we can conclude that among the commodities,
only soybean exhibit weak safe-haven properties against USEPU.
Figure 4D describes the impacts of VIX on commodities. Figure 4D1 shows that VIX neg-
atively impacts the GSCI in both the lower and upper quantiles in all frequencies. Conversely,
in the medium run, Fig. 4D2 reveals that only the lower and upper quantiles of VIX positively

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impact the upper quantiles of WTI returns. Figure 4D3 unveils that the upper quantiles of
VIX and natural gas returns have a positive correlation both in the short and long run.
Moreover, there is a highly antagonistic relationship between VIX and soybean returns
in the short- and medium-run. At the same time, only the lower and upper quantiles of VIX
positively impact the lower to upper quantiles of soybean. Conversely, a strong negative
relation is found between VIX and CE stock. Overall, VIX and almost all commodity assets
are negatively correlated, indicating that commodity assets can not hedge the VIX shocks.
Figure 4E exhibits that all the commodities (except soybean) are negatively affected by
OVX in the entire frequencies. Figure 4E4 shows a positive relationship between the lower
and upper quantiles of OVX and soybean in the short run. Similarly, a positive association
exists in the lower–upper and upper-lower quantiles of OVX and soybeans in the medium
run, respectively. In the long run, the lower and higher quantiles of OVX positively impact the
bearish and bullish conditions of the soybean market. Therefore, only soybeans can weakly
hedge OVX.
Finally, Fig. 4F shows a positive association between GPR and the commodity assets
except for some quantiles. Notably, at a time of highly bullish uncertainty, soybean and CE
stock show a strong positive correlation across all the frequencies. Thus, we can conclude
that soybeans and CE stock can function as robust safe-haven tools. Conversely, GSCI has
a positive association except for lower quantile in the medium run with GPR across the
quantiles and middle quantile in the medium and long runs, respectively. Similarly, (somewhat
surprisingly) the natural gas responds positively when the uncertainty is extreme for all the
quantiles, while the reverse is valid for WTI. Therefore, GSCI and natural gas may weakly
diversify the risk derived from GPR.
Overall, except for natural gas, all commodities are positively linked with the UCRY Policy
and Price and GPR during COVID-19. According to the summary in Table 4, our findings
also reveal that all commodities (excluding the soybean) are negatively linked with VIX, as
well as the USEPU and OVX. Furthermore, the strong (i.e., soybean and CE stocks) or weak
(i.e., GSCI, WTI oil, and CE stock) safe-haven assets against cryptocurrency uncertainty
are adversely related to other uncertainty indices (USEPU, VIX, and OVX), except GPR.
As a result, we can conclude that both of the cryptocurrency uncertainty indices impact
commodities differently from other uncertainty and volatility indices, excluding GPR, hence
supporting the hypothesis of Lucey et al. (2022). Also, our findings indicate that the safe-
haven properties of commodity assets alter across different frequencies and quantiles.
Although the cryptocurrency markets are growing fast, their market size is still fairly small
compared to the stock and oil markets and the overall economy. Cryptocurrencies represent
the new digital form of currency, and they are not massively used as mediums of exchange
worldwide yet. Hence, it is likely to have a comparatively lower influence on other markets.
On the other hand, the commodity markets are more relevant to aggregate economic activities,
stock markets, and oil markets than cryptocurrency markets. Therefore, any uncertainty from
the economy, stock markets, and oil markets tend to have a more adverse influence on the
commodity markets than the cryptocurrency markets.

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Table 4 Safe-haven summary from the QQ estimations

Safe-haven candidates Uncertainty indices

UCRY Policy UCRY Price USEPU VIX OVX GPR

Weak Strong Weak Strong Weak Strong Weak Strong Weak Strong Weak Strong
√ √ √
GSCI commodity
√ √
WTI
√
Natural gas
√ √ √ √ √
Soybeans
√ √ √
CE
√
“ ” represents the presence of safe-haven properties

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6 Conclusions

This study analyses the hedging and safe-haven features of five major commodity assets
against six popular uncertainty indicators. Employing the DCC-GJR-GARCH (1, 1) and
Wavelet-based Quantile-on-Quantile techniques on the weekly observations from December
30, 2013, to April 22, 2021, we show that only soybean and clean energy stock markets might
provide a strong hedge against UCRY Price and GPR, including during COVID-19. We find
poor safe-haven properties in the GSCI commodity against cryptocurrency uncertainties and
GPR, WTI against cryptocurrency uncertainties, natural gas against GPR, soybean against
UCRY Policy, USEPU, and OVX, and CE stock against UCRY Policy. Furthermore, our
findings suggest that assets’ safe-haven features vary throughout frequencies and quantiles.
Finally, except for GPR, both cryptocurrency uncertainty indices impact commodities in the
opposite direction of other uncertainty and risk indices.
Our findings contribute significantly to the investor’s portfolio management strategies in
several ways. First, investors and portfolio managers may use our findings to better forecast
the risks and impacts of different uncertainties on their portfolios and identify a notable col-
lection of alternative assets to diversify their portfolios against such uncertainties. Second,
investors and policymakers may better understand the risks associated with the cryptocur-
rency market and its impact on commodity markets. Third, our findings may be of great
interest when investors look for risk diversifiers during crises, particularly COVID-19-like
global shock episodes. To be specific, our result suggests that investors might use commodity
assets such as soybeans and clean energy stocks to hedge uncertainties and risks derived from
the cryptocurrency market and geopolitical events. Furthermore, because WTI crude oil and
GSCI commodity are proven to be weak risk diversifiers, we recommend that investors should
become more cautious about investing in them. Fourth, our findings urge commodity market
policymakers—mainly GSCI, WTI crude oil, natural gas, and clean energy stocks—to be
aware of the adverse effects of the vulnerability of US economic policy, stock market volatil-
ity, and crude oil volatility. Finally, our study suggests that the commodity investors should
consider the digital currency market uncertainties differently since the UCRY indices show
a distinct impact pattern than other uncertainty indices.
Future research can be conducted by, e.g., incorporating more commodity assets or
other financial assets and scrutinizing the effects of various uncertainty indicators, includ-
ing macroeconomic uncertainty, monetary policy uncertainty, etc., on such assets’ risk/return
profile. Another limitation of this study is that it could not consider the recent Russia-Ukraine
war issue, although the phenomenon has created havoc in the commodity markets. However,
it is too early to measure the accurate impact of the war. Hence, further studies are encouraged
to incorporate this issue to assess the war’s precise impact on the commodity markets. Future
research should also focus more profoundly on, e.g., the behavioral patterns in cryptocurrency
or other uncertainty indicators.

Author’s contribution All authors equally contributed to the paper.

Funding Open access funding provided by Linköping University. No funding was received for conducting
this study.

Data availability The data sources are given in the data and methodology section of the paper. The datasets
are provided on reasonable request.

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Declarations

Conflict of interest The authors declare that they have no competing interests.

Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which
permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give
appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence,
and indicate if changes were made. The images or other third party material in this article are included in the
article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is
not included in the article’s Creative Commons licence and your intended use is not permitted by statutory
regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.
To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.

Appendix

See Fig. 5 and Tables 5, 6, 7, 8, 9 and 10.

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7/9/2015

8/8/2016

4/9/2017

6/8/2018

8/7/2019
2/9/2019

8/6/2020
3/8/2020
30/12/2013

21/04/2014
16/06/2014
11/8/2014
6/10/2014
1/12/2014
26/01/2015
23/03/2015
18/05/2015
13/07/2015

28/12/2015
22/02/2016
2/11/2015

18/04/2016
13/06/2016

3/10/2016
28/11/2016
23/01/2017
20/03/2017
15/05/2017
10/7/2017

30/10/2017
25/12/2017
19/02/2018
16/04/2018
11/6/2018

1/10/2018
26/11/2018
21/01/2019
18/03/2019
13/05/2019

28/10/2019
23/12/2019
17/02/2020
13/04/2020

28/09/2020
23/11/2020
18/01/2021
15/03/2021
24/02/2014

UCRY Policy UCRY Price

Fig. 5 UCRY policy and price trend

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Table 5 Results from DCC-GJR-GARCH (1, 1) estimation (UCRY Policy and commodities)

lnUCRYPolicy lnGSCI lnUCRY lnWTI lnUCRY lnNatural gas lnUCRY lnSoybeans lnUCRY lnCE
Policy Policy Policy Policy

Panel A: AR (1)-GARCH (1, 1) estimation

Const. (M) 0.000** − 0.000 0.000** − 0.003 0.000** 0.001 0.000** 0.001 0.000** 0.003***
AR (1) − 0.458* 0.136** − 0.458* 0.096*** − 0.458* 0.170* − 0.458* 0.128** − 0.458* 0.040
Const. (V) 0.717** 0.856* 0.717** 4.254* 0.717** 1.279*** 0.717** 1.148 0.717** 0.587
α (ARCH 1) 0.244* − 0.065** 0.244* − 0.100** 0.244* 0.182* 0.244* 0.087 0.244* 0.219*
β (GARCH 1) 0.745* 0.788* 0.745* 0.684* 0.745* 0.820* 0.745* 0.730 0.745* 0.762*
(α + β) 0.989 0.723 0.989 0.584 0.989 1.002 0.989 0.817 0.989 0.981
GJR(Gamma) − 0.225*** 0.307* − 0.225*** 0.454* − 0.225*** − 0.166*** − 0.225*** − 0.038 − 0.225*** 0.023
Panel B: Diagnostic tests
Qs (20) 39.323* 15.301** 39.026 28.072 29.783 26.580 32.827 11.772 32.509 14.803
Hosking (20) 122.452* 122.404 91.289 86.275 81.807
Li– McLeod(20) 121.784* 121.798 91.445 86.728 82.291
Panel C: Information criteria
Akaike − 12.702 − 11.577 − 11.431 − 12.918 − 12.386
Shibata 12.705 − 11.581 − 11.435 − 12.922 − 12.389
Hannan– Quin − 12.636 − 11.512 − 11.366 − 12.853 − 12.320

Qs (20) for Ljung–Box test statistics, Hosking and McLeod, and Li are multivariate Portmanteau statistics for checking the null hypothesis of no serial correlation (using 20 lags). ∗ , ∗ ∗ , and ∗ ∗ ∗ indicate the
significance at 1%, 5%, and 10% levels, respectively
Annals of Operations Research
 Table 6 Results of DCC-GJR-GARCH (1, 1) estimation (UCRY Price and commodities)

lnUCRY Price lnGSCI lnUCRY Price lnWTI lnUCRY Price lnNatural gas lnUCRY Price lnSoybeans lnUCRY Price lnCE
Annals of Operations Research

Panel A: AR (1)-GARCH (1, 1) estimation

Const. (M) 0.000** − 0.000 0.000** − 0.003 0.000** 0.001 0.000** 0.001 0.000** 0.003***
AR (1) − 0.451* 0.136** − 0.451* 0.096*** − 0.451* 0.170* − 0.451* 0.128** − 0.451* 0.040
Const. (V) 0.359 0.856* 0.359 4.254* 0.359 1.279*** 0.359 1.148 0.359 0.587
α (ARCH 1) 0.275* − 0.065*** 0.275* − 0.100** 0.275* 0.182* 0.285* 0.087 0.285* 0.219*
β (GARCH 1) 0.769* 0.788* 0.769* 0.684* 0.769* 0.820* 0.769* 0.730 0.769* 0.762*
(α + β) 1.001 0.723 1.001 0.584 1.001 1.002 1.001 0.817 1.001 0.981
GJR(Gamma) − 0.320** 0.307* − 0.320** 0.454* − 0.320** − 0.166*** − 0.320** − 0.038 − 0.320** 0.023
Panel B: Diagnostic tests
Qs (20) 34.862** 33.294** 30.853 28.023 24.210 26.578 29.431 11.735 29.465 14.811
Hosking (20) 105.254** 96.422 90.002 76.868 81.113
li– McLeod (20) 104.946** 101.062 90.066 77.403 81.427
Panel C: Information criteria
Akaike − 13.155 − 12.033 − 11.880 − 13.374 − 12.849
Shibata − 13.158 − 12.036 − 11.884 − 13.377 12.853
Hannan– Quinn − 13.089 − 11.968 − 11.815 − 13.308 − 12.784

Please see the notes in Fig. 5

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Table 7 Results of DCC-GJR-GARCH (1, 1) estimation (USEPU and commodities)

lnUSEPU lnGSCI lnUSEPU lnWTI lnUSEPU lnNatural gas lnUSEPU lnSoybeans lnUSEPU lnCE

Panel A: AR (1)-GARCH (1, 1) estimation

Const. (M) − 0.008 − 0.000 − 0.008 − 0.003 − 0.008 0.001 − 0.008 0.001 − 0.008 0.003***
AR (1) − 0.343* 0.136** − 0.343* 0.096*** − 0.343* 0.170* − 0.343* 0.128** − 0.343* 0.040
Const. (V) 0.049* 0.856* 0.049* 4.254* 0.049* 1.279*** 0.049* 1.148 0.049* 0.587
α (ARCH 1) 0.138*** − 0.065*** 0.138*** − 0.100** 0.138*** 0.182* 0.138*** 0.087 0.138*** 0.219*
β (GARCH 1) 0.300** 0.788* 0.300** 0.684* 0.300** 0.820* 0.300** 0.730 0.300** 0.762*
(α + β) 0.438 0.723 0.438 0.584 0.438 1.002 0.438 0.817 0.438 0.981
GJR(Gamma) 0.149 0.307* 0.149 0.454* 0.149 − 0.166*** 0.149 − 0.038 0.149 0.023
Panel B: Diagnostic tests
Qs (20) 22.920 25.667 26.274 28.579 27.612 26.562 25.665 11.793 34.845 14.627
Hosking (20) 107.659 102.275 101.274 103.220 100.530
li– McLeod (20) 127.267 131.703 110.948 112.992 113.319
Panel C: Information criteria
Akaike − 3.956 − 2.820 − 2.669 − 4.179 − 3.611
Shibata − 3.959 − 2.823 − 2.673 − 4.183 − 3.614
Hannan– Quinn − 3.890 − 2.755 − 2.604 − 4.114 − 3.545

Please see the notes in Fig. 5

Annals of Operations Research
 Table 8 Results of DCC-GJR-GARCH (1, 1) estimation (VIX and commodities)

lnVIX lnGSCI lnVIX lnWTI lnVIX lnNatural gas lnVIX lnSoybeans lnVIX lnCE
Annals of Operations Research

Panel A: AR (1)-GARCH (1, 1) estimation

Const. (M) 0.007 − 0.000 0.007 − 0.003 0.007 0.001 0.007 0.001 0.007 0.003***
AR (1) − 0.160 0.136** − 0.160 0.096*** − 0.160 0.170* − 0.160 0.128** − 0.160 0.040
Const. (V) 0.009** 0.856* 0.009** 4.254* 0.009** 1.279*** 0.009** 1.148 0.009** 0.587
α (ARCH 1) 0.381*** − 0.065*** 0.381*** − 0.100** 0.381*** 0.182* 0.381*** 0.087 0.381*** 0.219*
β (GARCH 1) 0.549* 0.788* 0.549* 0.684* 0.549* 0.820* 0.549* 0.730 0.549* 0.762*
(α + β) 0.930 0.723 0.930 0.584 0.930 1.002 0.930 0.817 0.930 0.981
GJR(Gamma) − 0.508** 0.307* − 0.508** 0.454* − 0.508** − 0.166*** − 0.508** − 0.038 − 0.508** 0.023
Panel B: Diagnostic tests
Qs (20) 29.678 24.161 29.925 25.250 29.726 26.503 29.930 13.220 28.800 20.349
Hosking (20) 87.515 94.671 93.374 86.078 83.530
li– McLeod (20) 87.271 94.163 99.673 85.841 83.454
Panel C: Information criteria
Akaike − 5.404 − 4.263 − 4.039 − 5.544 − 5.306
Shibata − 5.408 − 4.266 − 4.043 − 5.547 − 5.309
Hannan– Quinn − 5.339 − 4.197 − 3.974 − 5.479 − 5.240

Please see the notes in Fig. 5

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Table 9 Results of DCC-GJR-GARCH (1, 1) estimation (OVX and commodities)

lnOVX lnGSCI lnOVX lnWTI lnOVX lnNatural gas lnOVX lnSoybeans lnOVX lnCE

Panel A: AR (1)-GARCH (1, 1) estimation

Const. (M) 0.003 − 0.000 0.003 − 0.003 0.003 0.001 0.003 0.001 0.003 0.003***
AR (1) − 0.146** 0.136** − 0.146** 0.096*** − 0.146** 0.170* − 0.146** 0.128** − 0.146** 0.040
Const. (V) 0.002* 0.856* 0.002* 4.254* 0.002* 1.279*** 0.002* 1.148 0.002* 0.587
α (ARCH 1) 0.272* − 0.065*** 0.272* − 0.100** 0.272* 0.182* 0.272* 0.087 0.272* 0.219*
β (GARCH 1) 0.710* 0.788* 0.710* 0.684* 0.710* 0.820* 0.710* 0.730 0.710* 0.762*
(α + β) 0.982 0.723 0.982 0.584 0.982 1.002 0.982 0.817 0.982 0.981
GJR(Gamma) − 0.299** 0.307* − 0.299** 0.454* − 0.299** − 0.166*** − 0.299** − 0.038 − 0.299** 0.023
Panel B: Diagnostic tests
Qs (20) 28.399 28.111 29.067 25.420 29.865 24.746 24.260 11.972 30.432 15.027
Hosking (20) 97.392 91.69 101.350 71.215 93.769
li– McLeod (20) 96.798 91.322 103.815 71.332 93.311
Panel C: Information criteria
Akaike − 6.329 − 5.247 − 4.740 − 6.266 − 5.841
Shibata − 6.332 − 5.250 − 4.743 − 6.269 − 5.844
Hannan– Quinn − 6.263 − 5.181 − 4.675 − 6.200 − 5.775

Please see the notes in Fig. 5

Annals of Operations Research
 Table 10 Results of DCC-GJR-GARCH (1, 1) estimation (GPR and commodities)

lnGPR lnGSCI lnGPR lnWTI lnGPR lnNatural lnGPR lnSoybeans lnGPR lnCE
gas
Annals of Operations Research

Panel A: AR (1)– GARCH (1, 1) estimation

Const. (M) 0.016 − 0.000 0.016 − 0.003 0.016 0.001 0.016 0.001 0.016 0.003***
AR (1) − 0.154 0.136** − 0.154 0.096*** − 0.154 0.170* − 0.154 0.128** − 0.154 0.040
Const. (V) 0.026** 0.856* 0.026** 4.254* 0.026** 1.279*** 0.026** 1.148 0.026** 0.587
α (ARCH 1) 0.163*** − 0.065*** 0.163*** − 0.100** 0.163*** 0.182* 0.163*** 0.087 0.163*** 0.219*
β (GARCH 1) 0.508*** 0.788* 0.508*** 0.684* 0.508*** 0.820* 0.508*** 0.730 0.508*** 0.762*
(α + β) 0.671 0.723 0.671 0.584 0.671 1.002 0.671 0.817 0.671 0.981
GJR(Gamma) − 0.227* 0.307* − 0.227* 0.454* − 0.227* − 0.166*** − 0.227* − 0.038 − 0.227* 0.023
Panel B: Diagnostic tests
Qs (20) 65.343* 29.787*** 65.168* 32.082** 65.231* 41.087* 65.001* 20.111 65.069* 14.239*
Hosking (20) 137.577* 140.197* 149.910* 122.217* 113.802*
li– McLeod 137.177* 139.668* 148.787* 122.216* 113.801*
(20)
Panel C: Information criteria
Akaike − 4.441 − 3.310 − 3.252 − 4.671 − 4.163
Shibata − 4.444 − 3.312 − 3.254 − 4.673 − 4.166
Hannan– Quinn − 4.384 − 3.252 − 3.194 − 4.613 − 4.106

Please see the notes in Fig. 5

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 Annals of Operations Research

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