Exploring the Effect of Climate Risk on Agricultural and Food Stock Prices Fresh Evidence from Emd-Based Variable-Lag Transfer Entropy Analysis

Climate has traditionally played an important role in the development of countries, owing to its inherent relationship with agricultural output and pricing. This study explores one such association between the most well-known climate anomaly, El Nin˜o34 Southern Oscillation, and international commodity prices of agriculture and food indexes. This study addresses the potentially causal effect of El Nin˜o34 on international agricultural and food stock prices. To do so, we develop a novel approach: the empirical mode decomposition variable-lag transfer entropy (EMD-VL transfer entropy) by combining the variable-lag transfer entropy framework and the empirical mode decomposition. The evidence reveals the following major results. First, climate shocks affect global agricultural stock prices at short-term. Second, significant transfer entropy from El Nin˜o34 to food index appeared at mid- and long-term business cycles. Third, unidirectional causal effect from climate shocks to agricultural and food stock prices is more intense at short business cycle attesting that the impact of climate shocks on food market is especially visible in the short-term horizon. Finally, our proposed method exceeds the traditional variable-lag transfer entropy by detecting such causal interplay at various business cycles, which is useful for investors and policymakers