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Beyond volatility: Systemic resilience and risk mitigation in interconnected commodity markets

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  • Singh, Vipul Kumar
  • Kumar, Pawan

Abstract

In today's interconnected commodity markets, understanding volatility spillover dynamics is crucial. This research builds on Diebold & Yilmaz (2012, 2014) to estimate System Resilience, a vital measure for investors and policymakers. By using connectedness-based estimates, a unique stability score for each system component is constructed and aggregated to estimate overall System Resilience. This concept is applied to three key commodity segments: Energy, Agriculture, and Metals. Results show that most commodities, especially bullion, maintain moderate stability, offering investment alternatives even during periods of heightened systemic risk. The study also examines rolling estimates of System Resilience to identify early warning signals through increased standard deviation in successive resilience series. Tipping points indicate critical slowdowns where recovery to a stable state is hindered. Findings suggest that apart from the Global Financial Crisis (GFC), commodity portfolios remain relatively stable. The implications are significant for energy policymakers, traders, and financial investors. Early detection of warning signals supports strategic risk management. This research contributes to academic discourse and provides actionable insights, highlighting the importance of early warning indicators in enhancing financial resilience in an ever-evolving market landscape. It underscores the value of foresight in navigating global financial stability.

Suggested Citation

  • Singh, Vipul Kumar & Kumar, Pawan, 2024. "Beyond volatility: Systemic resilience and risk mitigation in interconnected commodity markets," Energy Economics, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:eneeco:v:140:y:2024:i:c:s0140988324006613
    DOI: 10.1016/j.eneco.2024.107953
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    More about this item

    Keywords

    Diebold-Yilmaz network; Resilience index; Spillover risks; Portfolio management; Systemic risk; Commodity sectors;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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