Modelling extreme risk spillovers in the commodity markets around crisis periods including COVID19

Najaf Iqbal (), Elie Bouri (), Oksana Grebinevych () and David Roubaud ()
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Najaf Iqbal: Anhui University of Finance and Economics
Elie Bouri: Lebanese American University
Oksana Grebinevych: Montpellier Business School
David Roubaud: Montpellier Business School

Annals of Operations Research, 2023, vol. 330, issue 1, No 11, 305-334

Abstract: Abstract In this paper, we examine extreme spillovers among the realized volatility of various energy, metals, and agricultural commodities over the period from September 23, 2008, to June 1, 2020. Using high-frequency (5-min) price data on commodity futures, we compute daily realized volatility and then apply quantile-based connectedness measures. The results show that the connectedness measures estimated at the lower and upper quantiles are much higher than those estimated at the median, implying that realized volatility shocks circulate more intensely during extreme events relative to normal periods, which endangers the stability of the system of volatility connectedness under extreme events such as the COVID19 outbreak. There is evidence of a strong asymmetry between the behaviour of volatility spillovers in lower and upper quantiles, given that the connectedness measures estimated at the upper quantile are the highest. The main results are robust to rolling window size and other alternative choices. Our analyses matter to investors and policy makers who are concerned with the stability of commodity markets.

Keywords: Quantile connectedness; Extreme realized volatility spillovers; Asymmetry; Commodity futures; Crisis periods; COVID19 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-022-04522-9

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