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COVID‐19 and tail risk contagion across commodity futures markets

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  • Tongshuai Qiao
  • Liyan Han

Abstract

This paper examines the impact of COVID‐19 on tail risk contagion across commodity futures markets using a copula‐based network method. We document a significant increase in the lower and upper tail contagiousness of commodities following the COVID‐19 outbreak. Contagion shows an obvious clustering characteristic, that is, there is higher tail risk connectedness between commodities in the same category. Agricultural commodities are significantly less contagious than metals and energy commodities; soft commodities in particular can offer investors significant diversification benefits. There are several hub commodities in the contagion network, chief among them copper, which are good transmitters of shocks and should be treated with caution by investors and regulators. Although tail risk and contagiousness of individual commodities increase together during the pandemic, we find a negative cross‐sectional relationship between tail risk and contagiousness, that is, commodities with high tail risk are not necessarily highly contagious and may even be less so.

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  • Tongshuai Qiao & Liyan Han, 2023. "COVID‐19 and tail risk contagion across commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(2), pages 242-272, February.
    • Handle: RePEc:wly:jfutmk:v:43:y:2023:i:2:p:242-272
    DOI: 10.1002/fut.22388
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    2. Xuewei Zhou & Zisheng Ouyang & Rangan Gupta & Qiang Ji, 2024. "Time-Varying Multilayer Networks Analysis of Frequency Connectedness in Commodity Futures Markets," Working Papers 202422, University of Pretoria, Department of Economics.

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