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Palm oil prices, similar to other edible oils and commodity prices, are highly sensitive to external shocks which have become particularly prominent in the wake of COVID-19 pandemic. The non-stationary nature of the palm oil price complicates the modelling and forecasting of its behaviour. This study investigates the impact of the external and internal shocks on Malaysian palm oil (MPO) prices using the SVAR methodology. The SVAR model utilised in this study is unique in that it employs the news-based indices called the Infectious Disease Volatility Tracker (IDVT) and the Economic Policy Uncertainty Index (EPUI) as parts of the time series. News-based indices can potentially uncover essential proxies for economic and policy conditions, as well as portend the investment decision-making and in turn the commodity prices. The rationale behind this choice is to capture the impact from perception and news-based indices on the Malaysian palm oil prices. The empirical result from impulse–response function (IRF) shows that the shock in IDVT has a significant positive impact on Malaysian palm oil prices suggesting the MPO is exposed to the external factor. In addition, amongst the external variables tested, IDVT shows the longest lasting and highest positive impact on Malaysian palm oil prices. These results are in accordance with forecast error variance decomposition which indicates that IDVT shock can explain a huge portion of MPO prices especially over a longer period. The model specified in this study is also sufficiently stable and robust. This study contributes to the literature the significance of news-based indices and their capability in influencing public perception on the current macroeconomic condition, hence influencing the decision-making process of economic agents. [ABSTRACT FROM AUTHOR]

Rubber is a traded commodity in the international market with considerable potential. The rubber industry is very essential in driving the economic activities of ASEAN-3 countries, namely Malaysia, Thailand and Indonesia. The close ties between the natural rubber (NR) markets in ASEAN-3 have led to the process of risk dissemination known as volatility spillover. In this regard, the paper aimed to investigate the spillover effect and dynamic correlation of NR price in ASEAN-3 using the Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH) model with Baba, Engle, Kraft and Kroner (BEKK) formulation. The empirical result shows that there is a significant bidirectional volatility spillover between the volatility of Malaysian and Thailand NR, while there is only a unidirectional volatility spillover found from Malaysia to Indonesia. However, no volatility spillover was detected either from Thailand to Indonesia or vice-versa. Moreover, results from constant conditional correlation (CCC) found that the dependency on NR among ASEAN-3 was highly significant and positive, indicating the return relationship was moving in the same direction throughout the sample period. However, the result from dynamic conditional correlation (DCC) shows that although the degree of correlation is high among the region, there is a period whereby the level of correlation is low due to crises and unprecedented events like earthquakes and tsunamis. The results also found that the current period of NR volatility depends on its past volatility and any news or information greatly influences and affects the NR volatility in all ASEAN-3 countries. [ABSTRACT FROM AUTHOR]