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Commodity market downturn: Systemic risk and spillovers during left tail events

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  • Gunay, Samet
  • Kirimhan, Destan
  • Cevik, Emrah Ismail

Abstract

We investigate systemic risk and spillovers in the commodity network during left-tail events using state-of-the-art methodologies: the Component Exponent Shortfall (CES), Quantile-Vector Autoregression (QVAR) and Causality-in-Risk. Our analysis focuses on five commodity groups: Energy (Crude Oil, Heating Oil, Natural Gas, Coal), Base Metals (Aluminum, Copper, Nickel, Zinc), Ferrous Metals (Iron, Steel), Precious Metals (Gold, Palladium, Platinum, Silver), and Others (Rubber). Across the models utilized, we consistently find that energy commodities and precious metals, along with copper as a standalone commodity, represent the most systemically risky group. Thus, portfolios incorporating these commodities are advised to implement more careful diversification to mitigate risks stemming from systemic factors. This may require additional attention to precious metals, as they are often considered safe-haven assets. Expediting the implementation of regulations that promote the replacement of fossil energy sources with green alternatives could be instrumental in managing systemic risk in the commodity market while also facilitating global sustainability. Finally, the results show that the impact of the Israeli-Palestinian conflict on both systemic risk and spillovers has been limited compared to the effects of COVID-19 and the Russia-Ukraine war.

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  • Gunay, Samet & Kirimhan, Destan & Cevik, Emrah Ismail, 2024. "Commodity market downturn: Systemic risk and spillovers during left tail events," Journal of Commodity Markets, Elsevier, vol. 36(C).
  • Handle: RePEc:eee:jocoma:v:36:y:2024:i:c:s2405851324000643
    DOI: 10.1016/j.jcomm.2024.100445
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    More about this item

    Keywords

    Energy commodities; Israeli-Palestinian Conflict; Precious metals; Russia-Ukraine War; Systemic risk; Tail risk;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

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