Tail dependence, dynamic linkages, and extreme spillover between the stock and China's commodity markets

Cross-market linkage and spillover effects under extreme risk scenarios have recently attracted widespread attention from scholars. However, few studies have focused on tail dependence and extreme spillovers between the stock and the Chinese commodity markets. For the first time, this paper investigates the tail dependence, dynamic linkages, and extreme return spillovers between the stock market and China's commodity markets, employing the novel quantile coherency, DCC-FIGARCH model, and quantile connectedness approach. The empirical results demonstrate that chemical commodities and non-ferrous metals exhibit relatively stronger linkages with the US and Chinese stock markets. Lower return quantiles of the stock markets exhibit higher coherency with the lower return quantiles of Chinese commodity markets in the long-term time horizon. The quantile coherency in the long-term (yearly) is higher than that in the middle (monthly) and short-term (weekly) time horizons. The dynamic linkages and return spillovers change over time and are vulnerable to major crises, particularly during the COVID-19 pandemic. The return spillovers at the extreme lower quantile are stronger than the spillovers at the extreme upper and median quantiles. Chemical commodity and non-ferrous metal sectors (grain commodity and noble metal sectors) are the two key net transmitters (recipients) of the return spillovers. The Chinese and US stock markets mainly act as the net recipients of the extreme spillovers.