Copula-based local dependence among energy, agriculture and metal commodities markets

Claudiu Tiberiu Albulescu (1) , Aviral Kumar Tiwari (2) , Qiang Ji (3)

1 CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière
2 ICFAI University Tripura
3 CAS - Chinese Academy of Sciences [Changchun Branch]

This paper studies the extreme dependencies among energy, agriculture and metal commodities markets, with an emphasis on local co-movements. By applying a novel, copula-based, local Kendall’s tau approach to measure nonlinear local dependence in regions, we identified asymmetric co-movements in and between bull and bear markets, as well as the changing trend in the degree of co-movements. Starting from a non-parametric mixture copula, we found that commodities markets’ co-movements increase in extreme situations. In addition, we found a stronger dependence between energy and other commodities markets at lower tails. Therefore, we showed that the energy market can offer diversification solutions for risk management in the case of extreme bull market events.

Mots clés: energy prices; commodity markets; local dependence; co-movements; mixture copula; local Kendall's tau

Domaines: Finance quantitative [q-fin.CP]; Gestion de portefeuilles [q-fin.PM]

Claudiu Tiberiu Albulescu, Aviral Kumar Tiwari, Qiang Ji. Copula-based local dependence among energy, agriculture and metal commodities markets. 2020. ⟨hal-02501815v2⟩