From Fields to Finance: Dynamic Connectedness and Optimal Portfolio Strategies Among Agricultural Commodities, Oil, and Stock Markets

Xuan Tu () and David Leatham
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Xuan Tu: Department of Agricultural Economics, Texas A&M University, College Station, TX 77843, USA
David Leatham: Department of Agricultural Economics, Texas A&M University, College Station, TX 77843, USA

IJFS, 2025, vol. 13, issue 3, 1-30

Abstract: In this study, we investigate the return propagation mechanism, hedging effectiveness, and portfolio performance across several common agricultural commodities, crude oil, and S&P 500 index, ranging from July 2000 to June 2024 by using a time-varying parameter vector autoregression (TVP-VAR) connectedness approach and three common multiple assets portfolio optimization strategies. The empirical results show that, the total connectedness peaked during the 2008 global financial crisis, followed by the European debt crisis and the COVID-19 pandemic, while it remained relatively lower at the onset of the Russia-Ukraine conflict. In the transmission mechanism, commodities and S&P 500 index exhibit distinct and dynamic characteristics as transmitters or receivers. Portfolio analysis reveals that, with exception of the COVID-19 pandemic, all three dynamic portfolios outperform the S&P 500 benchmark across major global crises. Additionally, the minimum correlation and minimum connectedness strategies are superior than transitional minimum variance method in most scenarios. Our findings have implications for policymakers in preventing systemic risk, for investors in managing portfolio risk, and for farmers and agribusiness enterprises in enhancing economic benefits.

Keywords: dynamic connectedness; risk management; portfolio theory; hedging strategy; stock market; agricultural commodities (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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