COVID‐19 and tail risk contagion across commodity futures markets

Abstract

This paper examines the impact of COVID-19 on tail risk contagion across commodity futures markets using a copula-based network method. We document a significant increase in the lower and upper tail contagiousness of commodities following the COVID-19 outbreak. Contagion shows an obvious clustering characteristic, that is, there is higher tail risk connectedness between commodities in the same category. Agricultural commodities are significantly less contagious than metals and energy commodities; soft commodities in particular can offer investors significant diversification benefits. There are several hub commodities in the contagion network, chief among them copper, which are good transmitters of shocks and should be treated with caution by investors and regulators. Although tail risk and contagiousness of individual commodities increase together during the pandemic, we find a negative cross-sectional relationship between tail risk and contagiousness, that is, commodities with high tail risk are not necessarily highly contagious and may even be less so.

A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions

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Dynamic Correlations Between Carbon Futures and Energy Futures Markets

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“…Currently, the research on financial risk contagion and spillover is mainly discussed from three aspects: extreme risk, return and volatility spillovers (Chatziantoniou et al, 2022;Gong, Zhao, et al, 2023;Qiao & Han, 2023). For example, Wang et al (2018) used the TENET model to construct an extreme risk spillover network among financial institutions in China, and found that the tail risk spillover of banking industry is the largest.…”