Risk spillover effect and portfolio strategy between Chinese commodity futures market and international green finance market

Jian Liu, Chaoqiang Chen and Xiaodan Mao

Research in International Business and Finance, 2025, vol. 79, issue C

Abstract: This study investigates risk spillover and portfolio optimization between the Chinese commodity futures market and the international green finance market. Using the maximum overlapping discrete wavelet transform (MODWT) and a rolling window vector autoregression-based Diebold–Yılmaz spillover index model, combined with complex network analysis, this study examines risk spillover across different time frequencies and network structures. The findings reveal that risk spillover occurs across multiple time scales, with the international green finance market consistently playing a dominant role, particularly through the green stock market. Although China’s commodity futures market shows a relatively modest overall spillover effect, its significance becomes more pronounced with increasing time scales. The risk spillover network analysis indicates that risk transmission between markets intensifies during extreme events, with the severity of each event directly influencing the complexity of the network. Moreover, the denser connections in the risk spillover network at medium- and long-term scales emphasize the need for investors to prioritize these periods. Portfolio optimization simulations under various investment strategies demonstrate the role of international green finance market in enhancing the performance of China’s commodity futures market by effectively enhancing diversification. These insights may be highly valuable for regulatory bodies aiming to bolster macroprudential regulation and for investors seeking to better manage risks, enhancing the understanding of cross-market risk transmission mechanisms.

Keywords: Commodity futures market; Green financial market; Risk spillover; Portfolio (search for similar items in EconPapers)
JEL-codes: D85 F3 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003320

DOI: 10.1016/j.ribaf.2025.103076

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