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New Perspectives on Commodity and Currency Risk

Cicchetti, C. (2021). New Perspectives on Commodity and Currency Risk. (Unpublished Doctoral thesis, City, University of London)


This thesis proposes new frameworks and methodologies for understanding commodity price co-movements with national currencies. The body of work is organized into three self-contained research papers and are thus referred to throughout the thesis corresponding to each chapter. Throughout the work, ‘chapter’ and ‘paper’ may be used interchangeably, though for ease of reference all page numbers are ordered sequentially as one body of work while figure, equation and table numbers are ordered corresponding to chapter.

The first chapter proposes a novel framework for interpreting currency-commodity correlations: indirect relationships. Direct, or ‘traditional’ currency-commodity effects, enjoy a wide literature base where such relationships assert themselves via a trade link: where a significant proportion of national product is linked to a specific commodity, variation in demand for that commodity will have a substantial impact on demand for national currency. Indirect relationships are proposed, where currency-commodity correlations will assert themselves during times of crisis, or in cases where there is no explicit import-export channel in the stated commodity market.

The second chapter contributes a crisis-state definition framework based on currency volatility-acceleration as a means of implementing the conceptual framework for detecting indirect currency-commodity relationships in Emerging Market (EM) countries. Instances of direct and indirect currency-commodity relationships are identified under the frameworks and are subjected to statistical robustness testing. The currency volatility acceleration tool is shown to be a potent ‘early-warning’ detection system for defining crisis-states in certain EM countries, and the indirect currency-commodity framework is shown to produce significant results and validate the methodology.

The third chapter contributes a pricing-power detection framework based on currency-commodity relationships, generalizing findings that demonstrate a statistically significant relationship between the British pound and European sugar import prices arising from a single UK firm dominating refined sugar exports to the Continent.

Publication Type: Thesis (Doctoral)
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School
Bayes Business School > Finance
Bayes Business School > Bayes Business School Doctoral Theses
[img] Text - Accepted Version
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