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Dynamic Correlation and Risk Contagion Between “Black” Futures in China: A Multi-scale Variational Mode Decomposition Approach

Qunwei Wang (), Xingyu Dai and Dequn Zhou
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Xingyu Dai: Nanjing University of Aeronautics and Astronautics
Dequn Zhou: Nanjing University of Aeronautics and Astronautics

Computational Economics, 2020, vol. 55, issue 4, No 5, 1117-1150

Abstract: Abstract This paper explores the dynamic correlation and risk contagion between “black” futures in China at various time horizons. We employ the DCC-GARCH-t model and Granger causality in risk test jointly with variational modal decomposition. Our study covers the period from October 2013, to January 2018. The paper’s three key findings are as follows: first, a positive dynamic correlation exists between “black” futures across most sample period at each time scale. Secondly, dynamic correlation differs between “black” futures, which is largest during the medium-term time scale. What’s more, the correlation of coking coal futures and coke futures is consistently higher than other pairs at each time scale. Thirdly, the direction and the time lag of risk contagion varies across different time scales. The complexity of contagion will increase as the length of the time scale increases. We have also discovered some synchronic contagions between “black” futures.

Keywords: Futures market; Risk contagion; Dynamic correlation; DCC-GARCH; Variational mode decomposition (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10614-018-9857-y

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