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Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach

Author

Listed:
  • Satish Kumar

    (ICFAI Foundation for Higher Education, India)

  • Aviral K. Tiwari

    (Montpellier Business School, Montpellier, France)

  • Ibrahim D. Raheem

    (EXCAS, Liège, Belgium)

  • Qiang Ji

    (Beijing, China)

Abstract

We apply pair vine copulas, specifically the C-vine and R-vine copulas, to examine the conditional multivariate dependence pattern/structure and R-vine copula-based value-at-risk (VaR) to assess financial portfolio risk. We examine the co-dependencies of 13 major commodity markets (which include three energy commodities, six agricultural commodities and four precious metals prices) from 2 January 2003 to 19 December 2016. Dividing our sample into three sub-periods, namely pre-GFC, GFC and post-GFC, we find that the dependencies among commodities undergo changes in a complex manner, changing in different financial conditions, and that the Student-t copula appears on the maximum number of occasions, especially during the GFC period, signifying the existence of fatter tails in the distributions of returns. We further show that the co-dependencies computed using R-vine copulas are best suited to compute the portfolio VaR during the considered time period.

Suggested Citation

  • Satish Kumar & Aviral K. Tiwari & Ibrahim D. Raheem & Qiang Ji, 2019. "Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach," Working Papers 19/092, European Xtramile Centre of African Studies (EXCAS).
    • Handle: RePEc:exs:wpaper:19/092
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    Cited by:

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    More about this item

    Keywords

    R-vine; VaR; Dependence structure; Tree structure; Commodity markets;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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