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Stochastic Sequencing of Systemic Risk in Commodity Markets: Based on Geopolitical Risk Events Assessment

Author

Listed:
  • Chien‐Chiang Lee
  • Mengqi Li
  • Xiaoming Zhang
  • Peiru Wang

Abstract

This paper proposes a model that combines the DCC‐GARCH‐CQR model with NIG distributions. Relying on the stochastic nature of CoVaR consistency rankings, we assess the risk contribution rankings of 21 major commodity futures to quantify the contribution of the commodity markets to systemic risk from the perspective of geopolitical tensions. The empirical findings suggest that geopolitical risks such as the Russian‐Ukrainian and Palestinian‐Israeli conflicts exacerbate systemic risk in commodities. It is worth noting that the impact of net spillovers differs across commodity sectors, especially for energy sector commodities such as WTI and gasoline, whose risk manifests as a critical factor in systemic risk. Conversely, gold is relatively less volatile in terms of sequencing and can serve as a better hedge. In addition, we find that downside losses in commodities have a greater impact on the stability of the financial system than upside gains.

Suggested Citation

  • Chien‐Chiang Lee & Mengqi Li & Xiaoming Zhang & Peiru Wang, 2025. "Stochastic Sequencing of Systemic Risk in Commodity Markets: Based on Geopolitical Risk Events Assessment," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(11), pages 2128-2150, November.
    • Handle: RePEc:wly:jfutmk:v:45:y:2025:i:11:p:2128-2150
    DOI: 10.1002/fut.70028
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