Commodity futures markets under stress and stress-free periods: Further insights from a quantile connectedness approach

Most of the academic literature on connectedness focuses on stock markets and commodity spot markets. However, there is still much to say about the connectedness among commodity futures markets at different expiration dates, as this part of the literature is as yet small and inconclusive. This paper builds on the existing literature by focusing on connectedness among a set of ten commodity futures markets (including energy, agriculture, and metal sectors) at different maturities, the global equity market and three different sources of uncertainty (financial, economic, and geopolitical) over the period 2000–2022. In doing so, we estimate a combination of complementary connectedness metrics based on the work of Diebold and Yilmaz (2012), which enables measuring average, and the works of Chatziantoniou et al. (2021) and Ando et al. (2022) which enable measuring connectedness under different market circumstances (i.e., low, median and high quantiles). The analysis provides evidence of the variable aspect of connectedness across commodities and uncertainty measures assessed across different quantiles. The average directional connectedness network suggests that commodity futures markets within the same category are significantly sensitive to each-other. However, interdependencies between commodities belonging to different categories are relatively lower. The average total connectedness across quantiles provides evidence of (i) a clear symmetric pattern at the extreme lower and upper quantiles, and (ii) an increase in connectedness with the magnitude of extreme negative and positive shocks. The time-varying analysis indicates that connectedness increases at all quantiles during periods of high market stress, but with relatively higher intensity at the lower quantiles. Additionally, the structure and magnitude of connectedness at the extremes – upper and lower quantiles – differs from the pattern of connectedness at the median quantiles.