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Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach

Satish Kumar, Aviral Tiwari (), Ibrahim Raheem () and Qiang Ji
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Qiang Ji: Beijing, China

No 19/092, Working Papers from European Xtramile Centre of African Studies (EXCAS)

Abstract: We apply pair vine copulas, specifically the C-vine and R-vine copulas, to examine the conditional multivariate dependence pattern/structure and R-vine copula-based value-at-risk (VaR) to assess financial portfolio risk. We examine the co-dependencies of 13 major commodity markets (which include three energy commodities, six agricultural commodities and four precious metals prices) from 2 January 2003 to 19 December 2016. Dividing our sample into three sub-periods, namely pre-GFC, GFC and post-GFC, we find that the dependencies among commodities undergo changes in a complex manner, changing in different financial conditions, and that the Student-t copula appears on the maximum number of occasions, especially during the GFC period, signifying the existence of fatter tails in the distributions of returns. We further show that the co-dependencies computed using R-vine copulas are best suited to compute the portfolio VaR during the considered time period.

Keywords: R-vine; VaR; Dependence structure; Tree structure; Commodity markets (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Pages: 35
Date: 2019-01
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Forthcoming: Journal of Applied Economics

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http://publications.excas.org/RePEc/exs/exs-wpaper ... tals-commodities.pdf Revised version, 2019 (application/pdf)

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Working Paper: Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach (2019) Downloads
Working Paper: Dependence risk analysis in energy, agricultural and precious metals commodities: A pair vine copula approach (2019) Downloads
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