Tail dependence between corporate CDS and commodity Markets : International evidence using IGARCH-Copulas

Commodity price shocks often coincide with abrupt repricing of corporate credit risk, but the dependence between commodity markets and corporate CDS spreads is difficult to quantify with correlation-based tools, especially in crises. We analyze this link with a two-step IGARCH-Copula framework that filters volatility persistence and heteroscedasticity in each marginal series and then models non-linear, asymmetric, and tail dependence. The study uses daily 5-year CDS spreads for 27 large firms across Europe, East Asia, and North America from 2007 to 2024, with commodity conditions proxied by the S&P GSCI. The estimates reveal strong sectoral heterogeneity: tail dependence is concentrated in energy, utilities, and other commodity-intensive industries, while it is weak or negative for several technology and telecommunications firms. Dependence intensifies sharply in crisis regimes and remains limited in tranquil periods, indicating that commodity-driven credit risk materializes mainly through extreme events. Asymmetric copulas, notably Clayton and Gumbel, frequently provide the best fit, showing that adverse and favorable commodity shocks transmit differently to CDS spreads. These results provide innovation-based evidence on crisis-dependent risk transmission from commodity markets to corporate credit risk, with direct implications for hedging, diversification, and commodity stress scenarios in financial stability monitoring.