Risk spillover between energy and agricultural commodity markets: A dependence-switching CoVaR-copula model
Qiang Ji (),
Elie Bouri (),
David Roubaud and
Syed Jawad Hussain Shahzad ()
Energy Economics, 2018, vol. 75, issue C, 14-27
Unlike previous studies, we employ a relatively newer modelling technique — a time-varying copula with a switching dependence — to characterise the conditional dependence between energy and agricultural commodity markets in a more realistic way. Because the dependence may switch between positive and negative correlation regimes over time, a dependence-switching copula more appropriately and realistically captures a dependence structure than a single copula regime. Our findings indicate that the lower tail dependence is much stronger in a bearish regime than in a bullish regime, highlighting the importance of systematic risk spillovers during extreme downward movements. Furthermore, the significant risk spillovers from energy to agricultural commodities are verified by measuring the conditional value-at-risk (CoVaR) and delta CoVaR. Finally, some useful implications are summarized for investors' portfolios and risk avoidance.
Keywords: Energy; Agricultural commodity; Dependence-switching copula; CoVaR (search for similar items in EconPapers)
JEL-codes: C58 C63 G11 Q02 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:75:y:2018:i:c:p:14-27
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