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Connectedness and risk spillover in China's commodity futures sectors

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  • Jun Long
  • Xianghui Yuan
  • Liwei Jin
  • Chencheng Zhao

Abstract

This study employs minimum spanning tree and generalized forecast error variance decomposition methods to investigate the connectedness and risk spillovers across China's commodity sectors from January 2016 to December 2021. The results show that total connectedness within the commodity system is time varying. Chemical is the main risk driver, while other sectors occasionally dominate the system. These two methods achieve consistent results in identifying the systemically important sector and dynamic connectedness. In addition, we find that Chinese economic policy uncertainty and the investor sentiment index have significant impacts on total connectedness. Our findings have implications for preventing systemic risk for policymakers and managing commodity portfolio risk for investors.

Suggested Citation

  • Jun Long & Xianghui Yuan & Liwei Jin & Chencheng Zhao, 2024. "Connectedness and risk spillover in China's commodity futures sectors," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(5), pages 784-802, May.
    • Handle: RePEc:wly:jfutmk:v:44:y:2024:i:5:p:784-802
    DOI: 10.1002/fut.22489
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